You're aware of defined contribution plans and 401(k) from your previous place of work. But you're now at a new job and you no longer want to have anything to do with your former employer. Is 401(k) for you? Will it protect your financial rights? For the latest facts, figures and important things to know, take this quiz.
Where is the name 401(k) derived from?
- section 401, paragraph "k" in the American Constitution
- addendum "k" to page 401 in the Internal Revenue Code
- section 401, paragraph "k" in the Internal Revenue Code
In what year was the 401(k) plan proposed and how long did it take for the final regulations to come into effect?
- It was proposed in 1981 and it took 10 years.
- It was proposed in 1990 and it took five years.
- It was proposed in 1995 and it took two years.
Under a defined contribution plan, who defines what?
- The government defines the payment conditions.
- The employer or employee defines the amount to be contributed.
- The fund defines the dates of contribution and retirement payments.
How is 401(k) different from other retirement plans regarding taxation?
- Under 401(k), the money is taken off after it is taxed.
- Under 401(k), the money is taken off before it is taxed.
- Under 401(k), the money taken off is banked, $15,000 at a time.
Which of these is a drawback specific to the 401(k) retirement plan?
- Your employer could declare bankruptcy before you reach retirement age.
- The employer matches a portion of what you contribute.
- If you withdraw your money too early, you pay taxes and a fine.
Is there a limit to how much you can put into your 401(k) account every year?
- depending on the arrangement you've made with your employer
You've changed jobs and you no longer want to keep your money in your former employer's plan. What can you do?
- You can roll over the money into a new 401(k) plan or keep it where it is.
- You can request government permission to transfer the funds, but it is subject to approval.
- You're stuck and cannot do anything about it till the age of 59½.
If you're not sure how much money you want to put into your 401(k) account monthly, on what should you base your decision?
- annual salary, Social Security number, tax bracket
- marital status, job stability, family size
- the state of the economy, job stability, how much money you can do without
You just received a pay raise. Meanwhile, your employer contributes a flat rate to your 401(k). What should happen now?
- You should check your bank statements on a more regular basis.
- The flat rate remains unchanged. You should simply increase your own contribution.
- You should ensure that your employer increases his contribution.
Most 401(k) plans offer _____, such as stock mutual funds.
- bond mutual funds
- investment choices
- money market accounts
How secure are U.S. Treasury securities?
- very secure, with a small, steady growth
- not very secure
- as secure as any other investment choice
In a nutshell, when you buy stocks in a company, you are buying:
- a little part of that company
- out the company
- rights to make decisions in the company
In terms of risk level, what does a conservative route entail?
- high returns but a low chance of losses
- high returns but a high chance of losses
- low returns but a low chance of losses
When choosing to invest in an index fund, such as S&P 500 index, what annual average return is considered the optimum?
What does a fund's past performance often indicate?
- the past level of risk
- its future possibility for success
- the manner in which the fund was handled
What is the advantage of diversifying one's portfolio of funds?
- It balances your risk.
- It eliminates risk.
- It boosts your risk.
Economists and investors recommend having no more than what percentage of your portfolio in one stock?
- no more than 10%
- no more than 20%
- no more than 35%
What benefit to employers get out of contributing to 401(k) plans?
- It boosts their annual returns.
- It helps in recruiting good employees who want to work hard at their jobs.
- They get no benefit, but are legally required to contribute.
What would be considered a top-heavy company investment plan?
- More than 50% of the assets come from key employees.
- More than 55% of the assets come from key employees.
- More than 60% of the assets come from key employees.
Why does the IRS mandate nondiscrimination tests every year?
- to make sure that employees are aware of the plan and take advantage of it
- to make sure that employees are not discriminated against, according to their race
- to make sure that employees comply with the pension plan laws