What does CODA stand for in retirement plans?

The term CODA stands for Cash or Deferred Arrangement Plan. This is a specific type of retirement plan feature that allows employees to choose between receiving their compensation in cash or deferring their earnings to a retirement account, typically a 401(k) plan. The key aspect of a CODA is that it offers flexibility for employees to manage their income and savings strategy, allowing them to save for retirement while potentially reducing their taxable income in the current year. This provision is essential for many retirement savings plans as it encourages employee participation in retirement funding by offering options that align with individual financial goals.

The other choices do not accurately capture the established meaning of CODA in the context of retirement plans. For instance, some refer to variations of allocation and distribution agreements but do not pertain to the cash or deferred arrangement aspect that is central to the definition of CODA. This highlights the importance of understanding the terminology correctly, as it can significantly influence one's approach to planning for retirement.