Question

Contributions from wages to an employer retirement plan are generally either:

O tax-reduced or tax-deferred.
O tax-deferred or tax-accelerated.
O tax-exempt or tax-deferred.
O tax-accelerated or tax-exempt.

Answer 1

Contributions from wages to an employer retirement plan are tax-deferred, meaning they are not taxed at the time of contribution but are taxed when withdrawn in retirement.

"The correct option is approximately option B"

Step-by-step explanation:

Contributions from wages to an employer retirement plan are generally tax-deferred. This means that the money contributed to the retirement plan is not taxed at the time it is earned, but is instead taxed when it is withdrawn during retirement. The tax-deferral allows the contributions to grow and compound over time without the immediate burden of taxes.

For example, in a 401(k) plan, an employee can contribute a portion of their wages to the plan before taxes are deducted. This reduces the taxable income, leading to lower current taxes. The contributions and any investment earnings grow tax-free until the employee withdraws the funds during retirement, at which point they are subject to taxation.

In summary, contributions from wages to an employer retirement plan are tax-deferred, meaning they are not taxed at the time of contribution but are taxed when withdrawn in retirement.