Question

Mauricio’s retirement account allows him to delay paying taxes on contributions until he withdraws the money at retirement. Which statement describes Mauricio’s contributions?

A.
The contributions are tax exempt because they will be taxed at a minimal rate.
B.
The contributions are tax deferred because they will be taxed at a minimal rate.
C.
The contributions are tax exempt because they will be taxed in the future.
D.
The contributions are tax deferred because they will be taxed in the future.

Answer 1

D.

The contributions are tax deferred because they will be taxed in the future

Explanation:

Answer 2

C. The contributions are tax exempt because they will be taxed in the future.

Explanation:

The type of contribution Mauricio is doing is Tax Deferred Contribution, which refers to contributions from investment earnings, like dividends, capital gains or retirements accounts, all these accumulate tax-free fees until the person receive the profits.

Therefore, the right answer here is c, because it will be taxed in the future.