Question

Which of the following statements is true? a. Individuals that save in an employer-sponsored retirement plan...

Which of the following statements is true?

a. Individuals that save in an employer-sponsored retirement plan will have greater after-tax income and wealth than those who do not save in this plan.

b. Employer-sponsored savings plans are beneficial because the employer pays the taxes on the money contributed to retirement savings.

c. Employees must earn a minimum amount from their employer before they can contribute to the retirement plan.

d. Only retirement plans through work provide tax savings.

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Answer #1

Option (a) is true.

a) Individuals that save in an employer-sponsored retirement plan will have greater after-tax income and wealth than those who do not save in this plan.

An employer-sponsored plan is a type of benefit plan offered to employees at no or relatively low cost, in which the employer also contributes to the saving along with the employee.

In this plan, the savings amount for retirement gets deducted before tax payment, so the total taxable income of the individual is less, leading to less tax payment. So the after tax income and the total amount (wealth) of the individual is high when compared to the one who does not save.

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