3
QuizMultiple Choice

Financial Literacy — Test

Question 3 • Economics

In what way does a 401(k) differ from an individual retirement account (IRA)?

Answer
A
A 401(k) is created through an individual’s employer.
B
A 401(k) allows consumers to contribute before taxes.
C
A 401(k) can be created by individuals who deposit money.
D
A 401(k) is a good long-term investment strategy.

Explanation

A 401(k) is a retirement plan offered through an employer, while an IRA is generally opened by an individual. Both types of accounts may offer tax advantages, so those features do not distinguish a 401(k) from an IRA. The correct choice is that a 401(k) is created through an individual’s employer.

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