Question

Qualified retirement plans such as a 401(k) are set up by employers to benefit their employees. Sometimes annuities are chosen as the funding vehicle. Which of the following is true about qualified plans or annuities that fund them?

A. Withdrawals from qualified annuities are always tax-free.
B. Contributions to qualified plans are taxed as income in the year they are made.
C. Earnings on investments within qualified plans are tax-deferred.
D. Qualified plans do not allow for employer contributions.

Answer 1

Earnings on investments within qualified plans are tax-deferred.

Step-by-step explanation:

In qualified retirement plans such as a 401(k), annuities can be chosen as a funding vehicle. Annuities are a type of investment product that provide a series of regular payments over a specified period of time. In the context of qualified plans, one of the true statements about them is that earnings on investments within qualified plans are tax-deferred. This means that the growth of the investments in the plan is not subject to income taxes until they are withdrawn.