Before-tax contributions

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Before-tax contributions

The portion of an employee's salary contributed to a retirement plan before federal income taxes are deducted; this reduces the individual's gross income for federal tax purposes.

Before-Tax Contributions

Contributions made to a retirement plan with taxable withdrawals. That is, when one makes before-tax contributions to a retirement plan, one does not pay taxes on the contributions in the year they are made, but defers taxation until one begins to make withdrawals from the plan. One makes before-tax contributions to traditional IRAs and most 401(k)s. See also: After-tax contributions.
References in periodicals archive ?
For comparability, the before-tax contribution to the regular IRA is $10,000, while the contributions to the brokerage account and the Roth IRA are with after-tax dollars--$6,700 for Emma and $7,500 for Lucas.
The average before-tax contribution rate remains nearly unchanged, at 7.
The following is an example of the tax treatment of $1,000 invested in a TFSA plan versus an RRSP plan for one year: RRSP TFSA Before-tax contribution $1,000 $1,000 Tax (30 per cent) -- $300 Net contribution $1,000 $700 Investment income five per cent $50 $35 Value of investment $1,050 $735 Tax upon withdrawal (30 per cent) $315 -- Value of investment after tax $735 $735
Therefore, if an investor expects to be in a higher marginal tax bracket during his/her earning and investing years than during his/her retirement years, the Traditional IRA provides higher after-tax withdrawals on an equivalent before-tax contribution.
For instance, for an equal before-tax contribution of $3,000, investors would end up with less after-tax money if they pay 40% before contributing (Roth) than if they wait and pay only 30% while withdrawing (traditional).
The main disadvantage of these plans, according to Rosen, is that you must follow all the IRS guidelines that govern them, as is the case for any IRS-qualified, before-tax contribution plan.
A SAR SEP allows employees to make their own before-tax contributions towards retirement.
Among those who do save, the average before-tax contribution rate is only 5.
Section 125 plans also allow employees to make before-tax contributions to personal spending accounts that can be used for qualifying health-care or child-care expenses.
A 401(k) plan allows employees to save and invest for their own retirement by making before-tax contributions through a cash or deferred compensation arrangement.
Before-tax contributions retirement savings plan, such as a 401(k), 403(k), or 457, are other methods workers save for retirement.