Tax-Deferred Retirement Plan

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Tax-Deferred Retirement Plan

A retirement investment plan in which a contributor does not pay taxes on contributions until after withdrawal at retirement. That is, one places a portion of his/her pre-tax income into a retirement account that allows it to be invested. Taxation is deferred until withdrawal from the account following retirement. Presumably, one's tax rate will be lower after retirement because one's income is usually lower after retirement. Common examples of tax-deferred retirement plans include IRAs and traditional 401(k)s. Some employers make matching contributions to these plans.