57% of Our Survey Respondents Answered This Retirement Question Wrong

By Heather Taylor2 Comments
How much do you know about your 401(k)? If you’re like 57 percent of our recent survey respondents, there might be one important thing that you’re not aware of.  

Here’s the most-commonly missed question on a recent Equity Trust-generated quiz, which was completed by 1,330 people:

True or False: You don’t have to pay for the 401(k) or other plan you get from your employer.

The answer: False.

This is a common misconception for many people. While you may not pay out-of-pocket to have a 401(k) or other employer-sponsored plan, mutual fund returns in 401(k) plans are normally reported as net returns, meaning that fees for managing your investments are subtracted from your gains or added to your losses before calculating the annual return.

In fact, the Department of Labor recently recognized this misconception and passed a rule requiring 401(k) plan administrators to make the fees charged clearer and easier to understand for investors.
Learn more about 401(k) fees in a recent blog post.

Did you know you could have an IRA and a 401(k) at the same time? Find out more here.

More retirement quiz questions

Overall, respondents averaged an 81-percent total score – not bad, but it indicates there’s still some opportunity for education.

How’s your retirement-saving knowledge? See how your answers stack up against some of the other true-or-false questions:

1. You can deduct the amount you contribute to a Traditional IRA from your income when doing taxes for that year.

Answer: True
Correct answers: 88 percent
As long as your income is not over the non-tax-deductible threshold for a given year, you are likely to qualify for a tax deduction in the amount of your annual Traditional IRA contributions. See IRS Publication 590 for more information. 

2. It is possible to use your IRA to help build or buy your first house.

Answer: True
Correct answers: 71 percent
The IRS allows certain exemptions for qualified early distributions that avoid early distribution taxes and penalties. For example, you may be able to take early distributions for your first home build/purchase, qualified education expenses, disability, unemployment, or certain unreimbursed medical expenses. See IRS Publication 590 for more information.

3. Your IRA can buy and hold real estate (For example: rental properties, raw land, rehabs/flips, mobile homes, tax liens, etc.)

Answer: True
Correct answers: 94 percent
Unlike many IRA custodians, self-directed IRA custodians like Equity Trust permit a wide variety of "alternative" investment options for your IRA. Real estate is one of the many alternative investments available through a self-directed IRA and permitted under IRS rules. See IRS Publication 590 for more information. 

4. Your IRA can loan money to an individual or business, secured by collateral. (Assuming IRS rules are followed).

Answer: True 
Correct answers: 81 percent
Loaning money through the form of promissory notes is one of the many alternative investment options available through a self-directed IRA. See IRS Publication 590 for more information. 
Download a list of 100+ Investment Options You Didn't Know Were Possible in Your IRA
Want more information on saving for retirement with a self-directed IRA? Set up a free consultation with an Equity Trust Senior Account Executive.