Which feature may be included in many 401(k) plans?

Which feature may be included in many 401(k) plans?

• A. Employer matching or non-elective contributions
• B. Mandatory employer contributions for all employees
• C. Plan investments restricted to savings accounts
• D. Contributions taxed annually by default

Answer: (A)

Many 401(k) plans include ways for employers to add to your retirement savings beyond what you contribute. The common features are employer matching or non-elective contributions. A match means the employer adds an amount based on your own deferral, often up to a percentage of your salary. A non-elective contribution is a fixed amount the employer contributes regardless of your contribution level. These features are popular because they boost savings and encourage participation. Other options don’t reflect typical 401(k) design. Employers aren’t required to contribute for every employee in every plan, though some plans (like safe harbor plans) may have mandatory elements, the general statement isn’t as universal. Investments inside a 401(k) aren’t restricted to savings accounts; they’re usually stocks, bonds, and mutual funds offered by the plan. And taxation isn’t that contributions are taxed annually by default; traditional 401(k) contributions are pre-tax (taxes are paid when you withdraw), while Roth 401(k) contributions are after-tax, with different tax timing.

Many 401(k) plans include ways for employers to add to your retirement savings beyond what you contribute. The common features are employer matching or non-elective contributions. A match means the employer adds an amount based on your own deferral, often up to a percentage of your salary. A non-elective contribution is a fixed amount the employer contributes regardless of your contribution level. These features are popular because they boost savings and encourage participation.

Other options don’t reflect typical 401(k) design. Employers aren’t required to contribute for every employee in every plan, though some plans (like safe harbor plans) may have mandatory elements, the general statement isn’t as universal. Investments inside a 401(k) aren’t restricted to savings accounts; they’re usually stocks, bonds, and mutual funds offered by the plan. And taxation isn’t that contributions are taxed annually by default; traditional 401(k) contributions are pre-tax (taxes are paid when you withdraw), while Roth 401(k) contributions are after-tax, with different tax timing.