Which of the Following Statements About Section 401(k)plans Is True

question 43

Multiple Choice

Which of the following statements about Section 401(k) plans is true?

• A)Elective salary deferrals to these plans are free of federal income taxation until the funds are actually withdrawn.
• B)These plans are exempt from rules that prevent discrimination in favor of highly compensated employees.
• C)There is no limit on the actual percentage of salary that can be deferred by highly compensated employees under a qualified plan.
• D)If an employee takes the funds made available to him or her in cash,the money received is not taxable.

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Definitions:

Compounded

The process where the value of an investment increases due to the interest earned on both the principal and the accumulated interest.

Semi-annually

refers to occurrences that happen twice a year.

RRSP

Registered Retirement Savings Plan, a Canadian investment account for holding savings and investment assets, with tax advantages.

Compounded

The process of accumulating interest on an investment or loan where the earned interest is added to the principal, leading to interest being earned on interest.