What does it mean for contributions to be 'pre-tax' in a TSA?

When contributions to a Tax-Sheltered Annuity (TSA) are described as 'pre-tax,' it indicates that no taxes are paid on those contributions at the moment they are made. Essentially, this means that individuals are able to defer paying taxes on their contributions until they withdraw funds from the TSA, typically during retirement.

By making pre-tax contributions, individuals can potentially lower their taxable income for the year, which can lead to tax savings in the short term. It allows the contributions, along with any investment growth, to accumulate without being taxed until withdrawn. This deferral of tax can be particularly advantageous, as many individuals find themselves in a lower tax bracket during retirement when they begin to access these funds.

The concept of pre-tax contributions is critical in understanding how tax-advantaged retirement accounts operate and encourages saving for retirement by reducing taxable income in the present.