Question

9 which of the following is true regarding 401k investments?
interest on investments is tax deferred.
interest on investments is not tax deferred.
employer can contribute part of employees pay without consent.
this retirement plan is rarely used.

Explanation:

Analyze 401k plan characteristics

Using the 401k Plans and Tax-Deferred Contributions knowledge points

• A traditional 401(k) is a tax-advantaged retirement account offered by employers.
• Contributions are made with pre-tax dollars, meaning they reduce taxable income in the year they are made.
• Investment growth, including interest, dividends, and capital gains, is tax-deferred until withdrawal.

Evaluate the given options

Using the 401k Plans knowledge point

• Option 1: "Interest on investments is tax deferred." This is true because taxes on earnings are postponed until retirement withdrawals.
• Option 2: "Interest on investments is not tax deferred." This is false.
• Option 3: "Employer can contribute part of employee's pay without consent." This is false; employees must elect to participate and choose their contribution rate.
• Option 4: "This retirement plan is rarely used." This is false; it is one of the most common employer-sponsored retirement plans.

Answer:

• (A) Interest on investments is tax deferred. (Correct answer)
• (B) Interest on investments is not tax deferred.
• (C) Employer can contribute part of employee's pay without consent.
• (D) This retirement plan is rarely used.