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Pre-Tax Contribution

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Pre-tax contribution
Payment to an account made with funds from a worker's paycheck before federal income taxes are deducted.

Pre-Tax Contribution
A contribution made to a retirement plan with taxable withdrawals. That is, when one makes pre-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 pre-tax contributions to traditional IRAs and most 401(k)s. See also: After-Tax Contributions.


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This tax break benefits workers who earn less than $25,000 because pre-tax contributions lower the taxpayer''s reportable income and the Saver''s Credit provides additional tax relief with its matching funds.
If you've only made pre-tax contributions to the account -- which is the case for many 401(k) participants -- then the entire amount you withdraw will be taxed.
 
 
 
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