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What does the term “pre-tax” mean?

April 26, 2017mean pre-tax term

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What does the term “pre-tax” mean?

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When you contribute to your 401(k) account, money gets invested before federal and most state income taxes are calculated. That means you are being taxed on less money than you’ve actually earned. Your money goes to work for you and continues to grow, earning interest and capital gains on a tax-deferred basis. Of course, when you reach your retirement years and start withdrawing money from your 401(k) account, you will pay regular income taxes on the contributions and earnings you withdraw.