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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As an example, Falconer said the maximum tax-deferred contribution to a 401(k) is $10,500.
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.
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.
The plan, called the Enterprise Individual(k), offers certain small, owner-only businesses a new choice for their retirement savings by allowing up to $40,000 in tax-deferred contributions.
Most Americans are now familiar with 401(k) plans epitomized by employee tax-deferred contributions (often with a company match).
Individuals who choose this option can supplement their individual accounts with additional tax-deferred contributions.
The statutory yearly limit on tax-deferred contributions to a 401(k) plan is $8,475--not much for a highly compensated executive.
6) The reason for the variance in allowable maximum percentages contributed is the Internal Revenue Code's restrictions on tax-deferred contributions.
Recent legislative changes and the desire to accelerate retirement savings have generated higher demand for Cash Balance Plans, which allow employers to make large tax-deferred contributions.