Multiple Choice
Why might a broker look at world news and financial data when making investment decisions?
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1. Introduction to Accounting
Useful Information
Multiple Choice
Which of the following best describes the primary difference between 401(k) and 403(b) retirement accounts?
A
401(k) plans are insured by the FDIC, while 403(b) plans are not insured.
B
401(k) plans have no contribution limits, while 403(b) plans have strict annual contribution limits.
C
401(k) plans allow only after-tax contributions, while 403(b) plans allow only pre-tax contributions.
D
401(k) plans are offered by for-profit employers, while 403(b) plans are offered by non-profit organizations and public schools.
Verified step by step guidance1
Understand the nature of 401(k) and 403(b) retirement accounts. Both are tax-advantaged retirement savings plans, but they are designed for different types of employers.
Recognize that 401(k) plans are typically offered by for-profit organizations. These plans allow employees to contribute a portion of their salary either pre-tax or post-tax (Roth contributions) to their retirement savings.
Understand that 403(b) plans are specifically designed for employees of non-profit organizations, such as charities, religious institutions, and public schools. Contributions are generally made on a pre-tax basis.
Note that the primary difference between these two plans lies in the type of employer offering them: 401(k) plans are for for-profit employers, while 403(b) plans are for non-profit organizations and public schools.
Review the incorrect options provided in the problem to ensure clarity: FDIC insurance does not apply to either plan, both plans have contribution limits set by the IRS, and both allow pre-tax contributions (with Roth options available for 401(k) plans).
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