Pre-tax contributions are amounts taken from an employee's paycheck before taxes are deducted, reducing taxable income and potentially lowering the amount of taxes owed. These contributions are typically made to retirement accounts like 401(k)s or health savings accounts, providing both immediate tax benefits and long-term savings growth.

Pre-Tax Contributions

Employee's paycheck

Taxable income is the portion of an individual's or a company's income that is subject to taxation according to tax laws. It is calculated by subtracting allowable deductions and exemptions from gross income, thereby determining the amount on which tax liability is assessed.

Taxable Income

Amount of taxes owed

Retirement accounts are financial tools designed to help individuals save and invest for their retirement years, offering tax advantages to encourage long-term savings. Understanding the different types of accounts, such as 401(k)s and IRAs, and their contribution limits and tax implications is crucial for effective retirement planning.

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