Louisiana Series 101 – Life Insurance Practice Exam

All of the following are characteristics of a 401K plan, EXCEPT:

Pre-tax contributions Tax-deferred growth Employer matching contributions Post retirement distributions are tax free

Correct Answer:

Post retirement distributions are tax free

Explanation:

401(k) plans are designed to encourage saving by allowing pre-tax contributions, which reduces your current taxable income. The investments grow tax-deferred, so you don’t pay taxes on the earnings until you withdraw. Employers often provide matching contributions, which helps grow the plan faster. The part that isn’t true for a standard 401(k) is that post-retirement distributions are tax-free. In a traditional 401(k), withdrawals are taxed as ordinary income when you take them out. Tax-free distributions would only apply to a Roth option, not to the traditional 401(k).

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