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A Gentleman's Guide
1. How much are you allowed to save pre-tax in a 401(k) every year?
Up to the federal limit.
As much as you can afford.
As much as your plan allows.
2. What is the worst thing you can do with your 401(k) money when you change jobs?
a) Cash out of the plan.
b) Leave your 401(k) with your old employer.
c) Move the money into an IRA.
3. Under the 2001 Tax Relief Act:
a) 401(k) rollover rules were toughened.
b) You can no longer invest in both a 403(b) and an IRA.
c) You no longer have to worry about moving 401(k) money into a special "conduit" or "rollover" IRA.
4. One way to qualify for a "hardship withdrawal" from your 401(k) before you've separated from service with your employer is if:
a) You need to buy a car.
b) You'd like to go on safari.
c) You have two or more dependents under 18.
d) You need the money to avoid eviction.
5. If you take withdrawals under IRS Rule 72(t), you'll receive:
a) A lump-sum payment, worth 25 percent of your account's value.
b) Decreasing payments for at least five years or until you reach 59-½, whichever is longer.
c) Equal payments for at least five years or until you reach 59-½, whichever is longer.
d) A lump-sum payment, the amount of which you specify.
6. If your employer allows you to leave your money in its 401(k) plan when you retire, when will Uncle Sam require you to start taking distributions?
a) The year after you retire.
b) When you turn 70-½.
c) Five years after you retire.
d) Never. You can let that money sit tax-deferred for the rest of your life.
7. What's one clear advantage that a 401(k) has over an IRA?
a) It's a cooler name for an agent in a James Bond movie
b) It offers greater investment choice
c) It's easier to qualify for
d) It offers greater protection from creditors
8. What is one downside to taking a lump-sum distribution from your 401(k) when you retire?
a) You're obligated to roll the whole amount into an IRA, even if you need the money right away.
b) You'll have to pay income taxes on the whole amount for the tax year you take it.
c) You are only allowed to spend up to 25 percent of the distribution every year.
9. When deciding what to invest in from the menu of mutual funds in your 401(k) plan, look for funds that offer:
a) Average performance and price - that means they'll turn in steady performances year after year.
b) Above-average price - the more you pay, the better the fund.
c) Below-average price and above-average performance - you don't have to pay a bundle to beat the competition.
10. Why is it critical to know your plan's vesting schedule?
a) It determines when all of the money in your account is legally yours.
b) It determines when all of your match money is legally yours.
c) It determines when all of your contributions are legally yours.
In Lesson 23
Top things to know
The virtues of a 401(k)
How to invest in a 401(k)
Early withdrawals and loans
Taking distributions in retirement
Money Essentials Lessons
Making a budget
Basics of banking and saving
Basics of investing
Investing in stocks
Investing in mutual funds
Investing in bonds
Buying a home
Employee stock options
Saving for college
Kids and money
Planning for retirement
Hiring financial help
Buying a car