Investment Company and Variable Contracts Products Representative (Series 6) 2025 – 400 Free Practice Questions to Pass the Exam

When discussing employer contributions to a 401(k) plan, it's important to note that there is typically no fixed percentage limit on how much employers can contribute based on the employee's income. In fact, the contribution limits are generally defined by IRS thresholds rather than a specific percentage of the employee’s salary.

The choice indicating a contribution of 25% aligns with common practices. While employers can contribute up to a set percentage of the employee's compensation, they often use this parameter based on the overall plan design, which can vary. Additionally, employer contributions are subject to specific annual limits set by the IRS, which may influence how generous contributions can be.

Therefore, an employer may choose to contribute a percentage like 25% of an employee's eligible salary, reflecting a robust employer matching strategy, which can incentivize employees to save more for retirement. However, it's critical to highlight that this percentage can vary widely among employers and not all plans will offer this high a contribution rate.

This nuanced understanding of employer contributions reinforces why the answer highlights a significant but potentially variable percentage in real-world applications.