In state taxation, OBRA Contributions are classified as which?

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Multiple Choice

In state taxation, OBRA Contributions are classified as which?

Pre-tax contributions are deducted from your earnings before state income tax is calculated, which lowers your current-year taxable income. OBRA contributions are treated this way in state taxation, so the amount you contribute reduces the income you’re taxed on in the year of the contribution. The tax on those funds is deferred until withdrawal, when distributions are taxed as ordinary income. They’re not exempt from tax forever, nor are they taxed at the time of contribution, which is why pre-tax is the correct classification.

Pre-tax contributions are deducted from your earnings before state income tax is calculated, which lowers your current-year taxable income. OBRA contributions are treated this way in state taxation, so the amount you contribute reduces the income you’re taxed on in the year of the contribution. The tax on those funds is deferred until withdrawal, when distributions are taxed as ordinary income. They’re not exempt from tax forever, nor are they taxed at the time of contribution, which is why pre-tax is the correct classification.

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