Final answer:
Retirement account contributions that may be deducted from income taxes are considered pre-tax contributions. Such contributions lower the taxable income for that year and defer taxes until withdrawal. These are commonly seen in plans like 401(k)s and 403(b)s. The correct option is E. pre-tax.
Step-by-step explanation:
If a person’s retirement account contributions may be deducted from his or her income taxes, then these contributions are considered to be pre-tax contributions. The correct option is E. pre-tax. This means that the money is put into the retirement account before income taxes are applied, reducing the taxable income for the year the contributions are made.
People can often invest in stocks, bonds, and annuities through private firms at their workplace in a way that has special tax status, deferring taxes until the funds are withdrawn, as seen in 401(k)s and 403(b)s plans. These defined contribution plans not only offer tax benefits but also portability, allowing individuals to maintain their retirement savings even when changing employers.