Tax-Deferred Contribution

Tax-Deferred Contribution

A contribution to a retirement plan on which the contributor does not pay taxes until a later date. One reduces one's taxable income by the amount of the tax-deferred contributions, shielding those contributions from taxation. However, one eventually pays taxes on these contributions when one begins to make withdrawals from the retirement plan. Those contributions (and their investment income) are taxed as ordinary income upon withdrawal. One makes tax-deferred contributions to reduce one's tax liability in the near term in hopes that one's income (and therefore one's tax liability) will be lower after retirement.
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8) The United States does not treat individual savings arrangements (40lKs) generously, although it does have a catchup provision for older contributors, and its tax-deferred contribution limit for defined-contribution pension plans is US$53,000.
The details of the GOP plan haven't been released yet, but The New York Times reported that Republicans are talking about cutting the annual, tax-deferred contribution from the current $18,000 per year for people under 50 ($24,000 for people 50 or older) to a measly $2,000 a year.
1) Tax-deferred contribution levels are significantly higher than the $5,000 (in 2009) limit for traditional and Roth IRAs (see Chapter 6).
This 401(k) provides higher tax-deferred contribution limits than other common retirement options and, when offered within our variable annuity products, is an ideal solution for individuals who want an innovative, guaranteed living benefit that can establish a steady lifetime income stream in retirement.
Traditional Individual Retirement Account (IRA) - Allows qualifying individuals to annually make a $2,000 tax-deductible and tax-deferred contribution toward their retirement.
GOP lawmakers have been considering changes to the 401(k) structure, such as limiting the amount of tax-deferred contributions employees can make, as a way to help finance tax cuts.
Without this safe harbor, low plan participation among middleand lower-income workers might limit allowable tax-deferred contributions from key employees of the sponsoring company, including the business owner or owners.
Catch-up contributions are additional tax-deferred contributions and are separate from regular TSP contributions.
A solo or self-employed 401(k) combines a profit-sharing plan with a 401(k) plan and allows a sole owner-employee to make greater tax-deferred contributions than would be permitted under the others.
Fortunately, a 401(k) look-alike plan allows executives to overcome this discrimination by permitting tax-deferred contributions to a nonqualified retirement plan.
Most Americans are now familiar with 401(k) plans epitomized by employee tax-deferred contributions (often with a company match).