NASAA Series 65, Uniform Investment Adviser Law ExaminationClient Investment Recommendations and StrategiesMedium
A client, a recent college graduate, has just started their first full-time job. They have no significant savings but want to begin investing for retirement. They are comfortable with aggressive growth and have a long time horizon. Which of the following retirement plan types would generally be most suitable for them to contribute to, assuming their employer offers a match?
- A401(k)
- BSEP IRA
- CMoney Purchase Plan
- DTraditional IRA
Show answer & explanationAnswer & explanation
Correct answer: A. 401(k)
For a recent college graduate with a first job, a 401(k) is typically the most suitable option, especially if the employer offers a matching contribution. The matching contribution is essentially 'free money' and significantly boosts retirement savings, making it a powerful tool for young investors.
Why the other options are wrong
- B. A SEP IRA is typically for self-employed individuals or small business owners, not a typical employee.
- C. A Money Purchase Plan is a type of defined contribution plan, but less common for new employees than a 401(k) and focuses on employer contributions, not employee choice/match as the primary driver for this client.
- D. A Traditional IRA is a good option, but it lacks the employer match often available with a 401(k).
401(k) with Employer Match
An employer-sponsored retirement savings plan that allows employees to contribute a portion of their salary on a pre-tax or Roth basis, often with an additional matching contribution from the employer.
- Pre-tax contributions reduce current taxable income.
- Employer match is 'free money'.
- Tax-deferred growth (for traditional 401k).
Memory trick: Start early with free employer money in your 401(k).