CPS Investment Strategies 2

Question 1

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

Accepted Answer

$23,000

Answer

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

Question 2

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

Accepted Answer

ESPP

Answer

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

Question 3

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

Accepted Answer

Catch-up contribution

Answer

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

Question 4

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

Accepted Answer

The employee

Answer

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

Question 5

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

Accepted Answer

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

Answer

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

(CPS) Certified Payroll Specialist Practice Test