What are the two most popular personal retirement plans?
A. Keogh account and Social Security
B. Social Security and Roth IRA Plus
C. Keogh accounts and individual retirement accounts
D. 401(k) and Social Security
The correct answer is D. 401(k) and Social Security.
To determine the correct answer, you can start by understanding the different retirement plans available.
First, let's discuss Keogh accounts. Keogh accounts, also known as HR-10 plans, are retirement plans specifically designed for self-employed individuals or small business owners. They allow individuals to contribute a percentage of their earnings to a tax-advantaged account for retirement. However, Keogh accounts are not as widely utilized or popular as the other options.
Next, consider individual retirement accounts (IRAs). IRAs are personal retirement accounts that individuals can contribute to on their own, whether or not they have an employer-sponsored retirement plan. There are two main types of IRAs: traditional and Roth. Contributions to traditional IRAs may be tax-deductible, but withdrawals during retirement are taxed as income. Roth IRAs, on the other hand, require contributions with after-tax dollars, but withdrawals during retirement are tax-free.
Finally, let's discuss 401(k) plans. 401(k) plans are employer-sponsored retirement plans that allow employees to contribute a portion of their salary to a tax-advantaged investment account. Some employers may even offer matching contributions. The contributions are typically made on a pre-tax basis, meaning they are deducted from the employee's paycheck before income taxes are calculated. This allows for potential tax savings. However, withdrawals from a 401(k) during retirement are taxed as income.
Now, if we consider the options provided, we can see that the most popular personal retirement plans are the 401(k) and Social Security. The 401(k) is a widely used employer-sponsored retirement plan, offering tax advantages and often providing matching contributions. Social Security, on the other hand, is a government program that provides retirement income to eligible individuals based on their earnings history and age.
So, based on the options given, the correct answer is D. 401(k) and Social Security.