Question

6 which of the following is an advantage to a 401k plan?

you can cash it out at the end of the year
contributions only come out of your paycheck every other month
you can postpone contributions if needed
contributions are automatically deducted from your paycheck

Explanation:

Analyze the features of a 401(k) plan

Using the 401k Plans knowledge point

A 401(k) plan is an employer-sponsored retirement savings account. One of its primary practical advantages is convenience and consistency in saving, which is achieved because contributions are automatically deducted from your paycheck before you receive it. This automatic deduction helps individuals "pay themselves first" without needing to manually transfer funds.

Evaluate the given options

Using the 401k Plans knowledge point

• Option 1: "You can cash it out at the end of the year" — Incorrect. Cashing out a 401(k) early usually triggers heavy tax penalties and income taxes, so this is not an advantage or standard feature.
• Option 2: "Contributions only come out of your paycheck every other month" — Incorrect. Contributions are typically deducted from every regular paycheck (e.g., weekly, bi-weekly, or monthly), not every other month.
• Option 3: "You can postpone contributions if needed" — While you can change your contribution rate, this is not the primary structural advantage described.
• Option 4: "Contributions are automatically deducted from your paycheck" — Correct. This automation makes saving effortless and consistent.

Answer:

• You can cash it out at the end of the year
• Contributions only come out of your paycheck every other month
• You can postpone contributions if needed
• Contributions are automatically deducted from your paycheck (Correct answer)