Final answer:
For 401(k) retirement savings plans, contributions are indeed taken from pre-tax wages. These defined contribution plans allow the funds to grow tax-deferred and are portable across different employers.
Step-by-step explanation:
For 401(k) retirement savings plans, contributions are indeed taken from pre-tax wages, which means that they are made before income tax is applied. These defined contribution plans, which also include 403(b)s, allow both employers and employees to contribute a fixed amount to the worker's retirement account regularly, and these are typically invested in a range of investment vehicles. The funds in these accounts grow tax-deferred until withdrawal, usually during retirement, when they are then subject to income tax. This approach to saving for retirement has the advantage of potentially reducing the income tax liability during one's working years and may lead to a lower tax rate upon withdrawal if the retiree is in a lower tax bracket. Additionally, 401(k)s are portable, meaning that if an employee changes jobs, they can take their savings with them.