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Posts: 1940
8 months ago
What are the characteristics of the Pension Model?
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Posts: 1868
8 months ago
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Before-tax dollars are invested. Annual earnings on the investment grow at the before-tax rate of return. The entire accumulation is taxed at the end of the investment horizon when the investor cashes out of the plan.

The Pension Model provides two levels of tax deferral. Earned income contributed to the plan escapes taxation when contributed but is taxed later upon withdrawal. Earnings on the underlying investment are not taxed while in the plan but are taxed upon withdrawal. This double deferral contrasts with the Deferral Model, in which only investment earnings are deferred. Examples of the Pension Model are deductible IRAs, H.R. 10 plans, traditional pension plans, and 401(k) plans.
5 months ago
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