What is the primary difference in who makes the contributions to 401(k) and IRA retirement plans?

• A. 401(k) contributions are made only by the employer, while IRA contributions are made only by the employee.
• B. Both 401(k) and IRA contributions are made exclusively by the employer.
• C. Both 401(k) and IRA contributions are made exclusively by the government.
• D. 401(k) contributions are typically made by both the employee and employer, while IRA contributions are made solely by the individual.

Answer: (D)

Verified step by step guidance

1. Understand the key difference between 401(k) and IRA retirement plans. A 401(k) is an employer-sponsored plan, while an IRA is an individual retirement account.
2. Recognize that contributions to a 401(k) are typically made by both the employee and the employer. Employers may match a portion of the employee's contributions, which is a common feature of 401(k) plans.
3. Understand that IRA contributions are made solely by the individual. There is no employer involvement in funding an IRA.
4. Note that the government does not directly contribute to either 401(k) or IRA plans. However, both plans may offer tax advantages as regulated by government policies.
5. Summarize the distinction: 401(k) contributions involve both employee and employer, while IRA contributions are made exclusively by the individual.