Legal Definitions - CODA

Definition: CODA stands for Cash or Deferred Arrangement. It is a type of retirement savings plan that allows employees to choose between receiving cash payments or deferring a portion of their salary into a retirement account.

Example: An employee may choose to defer 5% of their salary into a 401(k) plan, which is a type of CODA. This means that instead of receiving that 5% as part of their regular paycheck, it will be deposited into their retirement account. The employee may also have the option to receive a cash bonus instead of deferring any portion of their salary.

Explanation: The example illustrates how a CODA works by showing how an employee can choose to defer a portion of their salary into a retirement account instead of receiving it as cash. This allows the employee to save for retirement while also potentially reducing their taxable income. The cash bonus option shows that the employee has a choice between receiving cash or deferring their salary, which is a key feature of a CODA.