Section 401(k) plans allow employees to contribute a portion of their current wages or salary to a tax-exempt retirement account. However, the contributed portion is still taxable compensation to the employee.

Question

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Contributions to a 401(k) plan are made on a pre-tax basis, which means they reduce the employee's taxable income for the year the contributions are made, and taxes are deferred until the funds are withdrawn in retirement.

Section 401(k) Plans Allow Employees to Contribute a Portion of Their