A(n)__________ plan is a savings plan that allows people to deposit pretax dollars and whose earning compound tax free until withdrawal,when the money is taxed at ordinary income tax rates.
A) 401(k)
B) 503(b)
C) Roth
D) Pension

Question

Quizplus · Accepted Answer

A 401(k) plan allows people to save for retirement by contributing pretax dollars, which reduces their taxable income. Additionally, the earnings in a 401(k) account compound tax-free until withdrawal. However, when the money is withdrawn during retirement, it will be taxed at ordinary income tax rates. Therefore, a 401(k) plan provides both immediate tax benefits and long-term retirement savings benefits.

A(n)__________ Plan Is a Savings Plan That Allows People to Deposit