Question

question
which of the following best describes a 401(k) plan?
answer
it is a plan that allows employee to pick from a menu of several choices of taxable and non - taxable forms of compensation.
it uses a company’s pension plan for employees to invest in company stock, effectively giving employees significant ownership in a company.
it is a compensation plan whereby employees earn a lower base salary that is then enhanced with a commission.
it is a retirement plan to which employees can contribute pre - tax dollars up to a specified legal limit.
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Explanation:

A 401(k) plan is a retirement savings plan. The first option describes a cafeteria plan. The second describes an employee stock ownership plan (ESOP). The third describes a commission - based compensation plan. The fourth option correctly states that a 401(k) is a retirement plan where employees can contribute pre - tax dollars up to a legal limit.

Answer:

The fourth option: It is a retirement plan to which employees can contribute pre - tax dollars up to a specified legal limit.