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.

BREAKING DOWN '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.

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