Cash or Deferred Arrangement - CODA

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Definition: Cash or Deferred Arrangement - CODA

CODA is an arrangement or a plan which gives employee an option to contribute some of his salary to the tax deferred investment plan.

A CODA can be direct or indirect. In direct, the employee decides everything and in indirect the employee takes the plan by default. 

Example: 401(k) plan.

401(k) is a retirement investment plan in which taxation on contributions is deferred until withdrawal of funds. An employee contributes a portion of his salary to the plan to be invested. The employee defers taxation on the funds contributed until withdrawal which is generally after retirement. In some cases, employer also contributes funds to employee’s account as a reward for their services.

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