What is a 401(k)?

• A. A type of savings account with high interest
• B. A retirement savings plan sponsored by an employer
• C. A government assistance program for retirees
• D. An investment account managed by a financial advisor

Answer: (B)

A 401(k) is specifically a retirement savings plan that is sponsored by an employer, allowing employees to save a portion of their paycheck before taxes are taken out. This type of plan provides various tax advantages, as contributions are made with pre-tax dollars and earnings on the investment grow tax-deferred until withdrawal during retirement. Employers may also provide matching contributions, which can further enhance an employee’s retirement savings.

The other options do not accurately describe a 401(k). While high-interest savings accounts are common, a 401(k) involves investment into a variety of funds or stocks rather than merely being a savings account. It is also not a government assistance program for retirees; rather, it's a tool for individuals to save for their own retirement. Lastly, while investment accounts may be managed by financial advisors, a 401(k) typically involves individual employee contributions and investment choices instead of being directly managed by an advisor.