Massachusetts Life Producer Practice Exam

Which type of plan allows for contributions by both the employer and the employee?

1. 401(k) plan

2. Simplified Employee Pension (SEP)

3. Traditional IRA

4. Roth IRA

The correct answer is: 401(k) plan

The 401(k) plan is a retirement savings plan that allows for contributions from both the employer and the employee. This type of plan is designed to facilitate savings for employees, where they can defer a portion of their salary into the plan before taxes are taken out. Employers may choose to match employee contributions up to a certain percentage, which can significantly enhance the employee's retirement savings. This structure incentivizes employee participation while also providing flexibility for employers to contribute, aiming to promote a robust retirement saving culture within their organizations. Other plans like a Simplified Employee Pension (SEP) generally allow only the employer to contribute, while IRAs, whether traditional or Roth, are typically funded solely by individual contributions without any provision for employer contributions.