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Portfolios 202: How Your 401(k) Plan Works

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1.
What's the minimum amount you should try to invest in your 401(k) plan?
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At least enough to get the employer match. Some people may not be able to contribute the maximum each year. But at least contribute enough to get the full employer match. That's free money.
2.
When you choose from among your investment options as you set up your 401(k) plan, you should choose a little from each option.
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False. As a rule, it is best to choose only those options that will help you reach your financial goal.
3.
The 401(k) plan is a type of _______.
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Defined contribution plan. The amount of money that 401(k) plan participants receive in retirement is based on the amount that they (and their employers) contribute to the plan, in addition to the investment returns they earn on those contributions. "Defined benefit" plans, such as pensions, generally pay a guaranteed sum based on wages and years of service.
4.
The summary plan description for your 401(k) plan explains _______.
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How your 401(k) plan operates. It does not tell you how much it will earn. It does not know that.
5.
How should you choose from among your 401(k) plan options?
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Choose options that will allow you to reach your financial goal. For some investors, that may mean stock funds only. For others, it may mean investing in bonds and cash options, too.