Question

Spencer has a retirement account through his employer. His monthly contributions to the account are taken out of his check before payroll taxes are calculated.

The fact that his employer sponsors his benefit package, and the contributions are , indicates that Spencer’s retirement account is a .

Answer 1

Spencer's pre-tax payroll deduction retirement account is likely a defined contribution plan, such as a 401(k) or 403(b), which are tax deferred and portable, and wherein both employer and employee can contribute.

Step-by-step explanation:

Spencer has a retirement account through his employer, where contributions are taken before payroll taxes, indicating that Spencer's retirement account is a defined contribution plan such as a 401(k) or a 403(b). These types of plans are tax deferred, meaning that contributions reduce a person's taxable income and the taxes on them are not paid until funds are withdrawn, typically during retirement.

Employers often contribute a fixed amount to these accounts with the employees contributing as well, and the investments within these accounts will generally grow tax-free until retirement. These plans are also portable, meaning if Spencer changes employers, he can take his retirement account with him, which is a significant benefit compared to traditional pension plans.