Investment Strategies Flashcards

An employee wants to maximize tax-deferred savings in a 401(k) plan. What is the IRS elective deferral limit for 2024?

Answer: $23,000

The IRS elective deferral limit for 401(k) contributions in 2024 is $23,000.

Which investment vehicle allows employees to purchase company stock at a discounted price through payroll deductions?

Answer: ESPP

An Employee Stock Purchase Plan (ESPP) lets employees buy company stock at a discount, typically 5–15%, via payroll deductions.

A 52-year-old employee wants to make additional retirement contributions beyond the standard limit. What provision allows this?

Answer: Catch-up contribution

Employees aged 50 and older may make catch-up contributions, which increase their annual deferral limit by an additional $7,500 in 2024.

In a defined contribution plan, which party bears the investment risk?

Answer: The employee

In defined contribution plans, the employee bears the investment risk because benefits depend on account performance.

What is the primary purpose of a target-date fund offered in a 401(k) plan?

Answer: To automatically shift to more conservative allocations as the target year approaches

Target-date funds automatically rebalance toward more conservative investments as the participant approaches the target retirement year.

Which type of IRA allows after-tax contributions with tax-free qualified withdrawals in retirement?

Answer: Roth IRA

Roth IRA contributions are made with after-tax dollars, and qualified withdrawals in retirement are completely tax-free.

An employer contributes 3% of each eligible employee's compensation to a SIMPLE IRA regardless of employee contributions. This is called a:

Answer: Non-elective contribution

A non-elective contribution is made by the employer for all eligible employees whether or not they contribute themselves.