401(k) Factoids Flashcards
What does the name ‘401(k)’ refer to?
It refers to Section 401(k) of the Internal Revenue Code (IRC).
In what year was the 401(k) section added to the tax code?
1978
What was the primary retirement savings method before 401(k) plans?
Pensions
What is the role of the IRS regarding the Internal Revenue Code?
The IRS is responsible for enforcing and interpreting the tax laws.
What are Required Minimum Distributions (RMDs) in a Traditional 401(k)?
Yes, RMDs start at age 73 (or 75 if born in 1960 or later).
What type of contributions are made to a Traditional 401(k)?
Contributions are made with pre-tax dollars.
What is the tax treatment of withdrawals from a Roth 401(k)?
Qualified withdrawals in retirement are tax-free.
What is a key benefit of a Roth 401(k)?
It provides tax-free income in retirement.
How does employer matching work in a 401(k)?
Employers may match a percentage of employee contributions.
If an employee contributes to a Roth 401(k), where does the employer match go?
The employer match goes into a Traditional 401(k) account.
What is a vesting schedule?
A schedule that determines how much of the employer match an employee owns over time.
What is a Roth IRA?
A retirement account allowing after-tax contributions and tax-free withdrawals in retirement.
What is the contribution limit for a Roth IRA in 2025?
$7,000 (or $8,000 if age 50+)
What are the income limits for contributing to a Roth IRA?
Yes, higher earners may not be eligible to contribute directly.
What is the key difference in RMDs between a Roth IRA and a Roth 401(k)?
Roth IRAs have no RMDs; Roth 401(k)s do have RMDs unless rolled over.
Fill in the blank: A Roth 401(k) allows contributions of up to _______ in 2025 for individuals aged 50 or older.
$30,500
Who is best suited for a Roth 401(k)?
People with access through their employer and those wanting to maximize contributions.
Who is best suited for a Roth IRA?
Individuals eligible based on income and those wanting more investment control.
What is a recommended strategy for maximizing tax-free income in retirement?
Contributing to both a Roth 401(k) and a Roth IRA.
True or False: Contributions to a Roth IRA can be withdrawn anytime tax- and penalty-free.
True
What is a simple way to explain the difference between a Traditional and a Roth 401(k)?
Traditional: tax break now, pay taxes later; Roth: pay taxes now, tax-free withdrawals later.
