A 401(k) plan is best described as which of the following?

A 401(k) plan is best described as which of the following?

• A. An Employee-Funded Retirement Savings Plan With Tax Advantages
• B. A Government Pension Program
• C. A Short-Term Disability Fund
• D. An Employer-Backed Life Insurance Plan

Answer: (A)

A 401(k) is an employer-sponsored plan that lets employees fund their own retirement savings, often with tax advantages. Contributions come from the employee’s salary and can be traditional pre-tax, reducing current taxable income and allowing the investments to grow tax-deferred until withdrawal in retirement. Many plans also offer a Roth option, where contributions are after-tax but qualified withdrawals are tax-free. Employers may match a portion of contributions, boosting savings. This is distinctly about saving for retirement with tax benefits, not about government pension programs, disability funding, or life insurance.

A 401(k) is an employer-sponsored plan that lets employees fund their own retirement savings, often with tax advantages. Contributions come from the employee’s salary and can be traditional pre-tax, reducing current taxable income and allowing the investments to grow tax-deferred until withdrawal in retirement. Many plans also offer a Roth option, where contributions are after-tax but qualified withdrawals are tax-free. Employers may match a portion of contributions, boosting savings. This is distinctly about saving for retirement with tax benefits, not about government pension programs, disability funding, or life insurance.