Quiz: Setting Up a 401(k) Plan

By: Staff

4 Min Quiz

Image: refer to hsw

About This Quiz

Although it's nice to think about the money coming in from your paycheck, it's also a good idea to consider where some of it can go. If your company offers a plan, and you've thought about saving for retirement, see how much you know about 401(k) accounts with this quiz.

At what age can you begin withdrawing money from a 401(k) account?

You can start taking money out of your 401(k) plan six months after turning 59, presumably giving you a little head start before retirement.

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Which of the following is NOT an advantage of a 401(k) plan?

On top of being taxed as income, early withdrawals from a 401(k) can come with federal and state penalties, as well.

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What is the federal 401(k) contribution limit per year if you're under age 50?

The federal government limits 401(k) plan contributions made by employees under age 50 to $17,500 per year (or 100 percent of the employee's salary, whichever comes first). This doesn't include your employer's contribution, however.

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How many employees participate in a 401(k) plan in the U.S.?

About 88 million people in the United States save for retirement with a 401(k) plan.

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What percentage of your salary should you put into a 401(k) plan throughout your career?

U.S. News recommends putting 10-15 percent of your salary into your 401(k), although you should only put away what you're comfortable with.

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On average, how much will companies match on a 401(k)

Most companies will match 50 percent of your contributions, although some will go as far as matching it 100 percent.

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What's a good way to determine how much of your portfolio should include stock investment?

Experts used to say subtract your age from 100 -- so if you're 30 years old, you should have 70 percent in stocks. Now, with people living longer, it's better to use 110 or even 120 minus your age. So at 30, have 80 or 90 percent of your portfolio in stocks.

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What happens to your 401(k) if you switch jobs?

Your employer will pay out the balance of your 401(k) plan if you move on to another job, but make sure you set up a trustee-to-trustee transfer, or direct rollover, if you want to avoid any taxes or penalties.

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Which type of investment is considered riskiest?

The closer you get to retirement, the more you should put into corporate bonds and treasury bills, since these are regarded as more stable than stocks.

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What does IRA stand for?

IRA stands for Individual Retirement Account, an alternative investment choice for those thinking about saving for retirement.

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