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n the United States, a 401K plan allows a person to save for his/her retirement



 
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n the United States, a 401K plan allows a person to save for his/her retirement #1 (permalink) Thu Mar 28, 2013 7:14 am   n the United States, a 401K plan allows a person to save for his/her retirement
 

English Language Proficiency Tests, Advanced Level

ESL/EFL Test #578 "Real Life: Banking (3)", question 2

In the United States, a ......... plan allows a person to save for his/her retirement. With this type of plan, a person can postpone paying income taxes on the amount invested until a withdrawal is made during his/her retirement years.

(a) test
(b) future
(c) 401K
(d) shareholders

English Language Proficiency Tests, Advanced Level

ESL/EFL Test #578 "Real Life: Banking (3)", answer 2

In the United States, a 401K plan allows a person to save for his/her retirement. With this type of plan, a person can postpone paying income taxes on the amount invested until a withdrawal is made during his/her retirement years.

Correct answer: (c) 401K

Your answer was: correct
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Hi Teachers,

am I right if suppose that the mechanism of this process is in postpone till retirement of tax payment?

Thank you,
Vladimir.
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n the United States, a 401K plan allows a person to save for his/her retirement #2 (permalink) Thu Mar 28, 2013 7:29 am   n the United States, a 401K plan allows a person to save for his/her retirement
 

You pay taxes only upon withdrawal, until that time no taxes are levied on your 401K. The whole account is not taxed, only the amount you withdraw, to help you avoid ending up in a higher tax bracket (you will be forced to pay more taxes then)
Quote:
Money in your 401k account retains its tax-deferred status until it is withdrawn. At that point it is subject to regular tax rates. You cannot claim capital gains on money earned from investments within your account. For this reason, it is very unwise to simply liquidate a 401k. The entire sum then becomes taxable within the current year, and that is likely to put you in a very high tax bracket.

http://www.ehow.com/about_4710171_how-k-taxed.html
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