Pretax Contribution

AAA

DEFINITION of 'Pretax Contribution'

Any contribution made to a designated pension plan, retirement account or other tax deferred investment vehicle where the contribution is made before federal and/or municipal taxes are deducted.

INVESTOPEDIA EXPLAINS 'Pretax Contribution'

In calculating a pretax contribution, the amount of taxes withheld will be reduced, as the basis for the taxable amount will be reduced. Making pretax contributions is beneficial to those who are eligible, as this will reduce the amount of taxes paid at that time. It is always better to defer payments due to the time value of money.

RELATED TERMS
  1. Elective-Deferral Contribution

    A contribution arrangement of an employer-sponsored retirement ...
  2. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  3. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  4. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  5. Registered Retirement Savings Plan ...

    Assets invested in an RRSP. RRSP contributions can be made at ...
  6. After-Tax Contribution

    A contribution made to any designated retirement or any other ...
RELATED FAQS
  1. I am making after-tax contributions to an IRA. Will I get taxed again when I withdraw ...

    No. Withdrawals of your after-tax contributions to your IRAs should not be taxed. However, the only way to make sure this ... Read Full Answer >>
  2. I am self-employed and do not need most of my IRA RMD for expenses. Can I reinvest ...

    You can use your required minimum distributions (RMDs) to fund your Roth IRA as a Roth IRA contribution. This is because ... Read Full Answer >>
  3. What are some examples of general and administrative expenses?

    In accounting, general and administrative expenses represent the necessary costs to maintain a company's daily operations ... Read Full Answer >>
  4. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  5. Why can additional paid in capital never have a negative balance?

    The additional paid-in capital figure on a company's balance sheet can never be negative because companies do not pay investors ... Read Full Answer >>
  6. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
Related Articles
  1. Taxes

    Retirement Plan Tax Form 8606: When To File

    If you have a Roth IRA, you are responsible for keeping track of your pretax versus after-tax assets.
  2. Taxes

    How After-Tax Rollovers Affect Your IRA

    Consolidating retirement assets? Make sure you account for pre-tax and after-tax assets separately.
  3. Professionals

    Is Your Financial Advisor Looking Out for You?

    Financial advisors sometimes aren't looking out for clients' best interests. Regulators are scrutinizing their practices; investors should too.
  4. Professionals

    How Advisors Can Help Expectant Couples

    Bringing a child into the world makes parents more acutely aware of their finances. Here's how advisors can help expectant couples prepare.
  5. Retirement

    Why Millennials Should Invest in a Roth IRA

    Saving for retirement is important, and it's important to start early. A Roth IRA is a great option for low-earners just entering the workforce.
  6. Economics

    Understanding the Top Line

    Top line refers to a company’s gross sales without any reductions for discounts or returns.
  7. Economics

    What's an Allowance for Doubtful Accounts?

    The allowance for doubtful accounts represents the percentage of the accounts receivable the company expects to write-off as uncollectible.
  8. Fundamental Analysis

    Understanding Activity Ratios

    Activity ratios measure how effectively a business uses its assets.
  9. Investing Basics

    What is Accrued Income?

    In a mutual fund, accrued income is earnings that have accumulated over the year, but have not yet been paid out to shareholders.
  10. Retirement

    How to Convert a Roth IRA to a Traditional IRA

    If the technicalities of converting a Roth IRA to a traditional IRA seem dauntingly complex, here are a few simple tips to guide you through the process.

You May Also Like

Hot Definitions
  1. Dog And Pony Show

    A colloquial term that generally refers to a presentation or seminar to market new products or services to potential buyers.
  2. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  3. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  4. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  5. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  6. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!