What type of contributions fall under the deductions permitted by IRC 404(a)(3)?

The correct answer focuses on nonelective employer contributions, which are contributions made by the employer to a 401(k) plan that do not depend on employee deferrals. Under the Internal Revenue Code (IRC) Section 404(a)(3), these contributions are specifically categorized as expenses that can be deducted by the employer in the year they are made, providing immediate tax benefits.

Nonelective contributions often serve as a way for employers to enhance employee retirement benefits, regardless of whether employees choose to contribute from their paychecks. This differentiates them from other types of contributions, such as employer matching contributions, which are contingent upon employee contributions, or employee elective contributions, which are voluntary contributions made by employees themselves.

By allowing deductions for nonelective contributions, IRC 404(a)(3) encourages employers to contribute to the retirement plans of their employees, thus facilitating better retirement preparedness and potentially increasing overall participation in retirement plans. This provision aligns with the broader goals of promoting retirement savings and enhancing financial security for employees.