Josh, age 25, is a marketing major who recently graduated from college and accepted a job with a global oil company. The company offers a number of employee benefit plans to its employees, including a 401(k) retirement plan.

Under the plan, eligible employees can elect a salary deferral of up to 6 percent of compensation not to exceed $16,500 (2011 limit for participants under age 50). The company makes a matching contribution of 50 cents for each dollar contributed. The company requires an employee to be at least age 21 and have at least one year of service with the company to participate in the plan. Based on the preceding information, answer the following questions.

Treat each event separately.

a. Josh is ineligible to enroll in the 401(k) plan for one year. Assume that you are a financial planner and recommend that Josh should contribute to a Roth IRA during this period. Describe the major characteristics of a Roth IRA.

b. Before Josh enrolls in a 401(k) plan, he would like know how the plan operates. Describe the major characteristics of a 401(k) plan.

c. Josh decides to participate in the 401(k) plan and elects to defer only 3 percent of his salary because he wants to pay off his student loans. What advice would you give him?

d. The company has a public stock offering and Josh has the opportunity to purchase common stock for his 401(k) plan at a 10 percent discount. What advice would you give Josh concerning the investing of 401(k) contributions in company stock?

e. Assume that Josh attains age 62 and plans to retire at age 65. His latest 401(k) statement shows that 90 percent of the assets are invested in common stocks and 10 percent in fixed income and money market funds. What advice would you give Josh concerning his present asset allocation?