Pre-Tax Deduction
paycheckAlso known as: pre-tax, pre-tax contribution
Updated · Written and reviewed by Konstantin Iakovlev
Detailed explanation
Pre-tax deductions provide immediate tax savings at your marginal rate. A $24,500 traditional 401(k) contribution for someone in the 22% bracket saves $5,390 in federal income tax this year (income deferred to retirement when the marginal rate may be lower). HSA contributions are uniquely "triple-tax-advantaged" — pre-tax going in, tax-free growth, tax-free out for qualified medical. Section 125 cafeteria plan deductions (health insurance, FSA, dependent care FSA) also reduce FICA, providing 7.65% additional savings.
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