Here are our top 10 reasons why you should join your plan. Top Three: Saving Made Easy 1. It's painless. Your employer automatically deducts your contributions every time you are paid. You don't need to remind yourself to write a check.
And, like Sandra Kessler, after a while most people don't miss the money. Choose the percentage of pay, recommends Brian Mattson, consulting actuary with Watson Wyatt Worldwide. You get free money with an employer match. Over 70 percent of plans offered some kind of matching contribution to encourage participation.
If your plan is among them, don't pass up this freebie. You get two tax breaks when you save in a k plan. First, your contributions are tax-deductible. The money you contribute doesn't count toward your gross income for the year, lowering your taxable income. Second, your money grows tax-deferred. If you saved money in a savings account or brokerage account you would have to pay taxes on your interest or dividends at the end of the year.
With a k plan, your earnings are rolled back into the plan and don't have to be listed as income on your tax return until you withdraw them. Your savings grow faster this way. For instance, if your employer offers a 5-percent match, it means they will contribute the same amount to your account that you do, up to 5 percent of your salary. You may be able to contribute more, but only the first 5 percent will be matched. In other words, your employer is offering you extra money.
Think of it as additional salary. Or a bonus. To withdraw the money means you also miss out on the advantage of time and its effect on compound interest.
Saving early and increasing your contributions as you go can help set yourself up for a secure retirement. This is a hypothetical example for illustrative purposes only. This does not take into account fees and taxes associated with investing nor the fluctuation of the investment market.
This information is a general discussion of the relevant federal tax laws provided to promote ideas that may benefit a taxpayer. Financial planners often speak of there being a three-legged stool for funding retirement: government-provided benefits, employer-provided benefits and personal savings. But with Social Security's future in doubt and pension plans going the way of the dodo bird, it's a good idea to depend on your own resources as much as possible.
One of the best ways for you to save toward your own retirement and ensure your future security is through an employer-sponsored k plan. If you don't participate, you're missing a golden opportunity to save for retirement while lowering your tax burden on those savings. Matching Contributions Many employers will match a portion of your savings.
It's like passing up free money if you don't participate. A common match might be 50 percent of the first 6 percent of pay you save. It's pretty hard to find a 50 percent return on any investment.
Even if your employer doesn't offer matching contributions, the tax advantages of a k still make this one of the best ways to save money for retirement.
Tax-Deferred Earnings When you contribute a percentage of your pay to a k plan, you immediately start paying less to Uncle Sam. Prev: How to sign up. Two very important questions you need to answer. Participating in your company k plan lowers your tax bill and makes monthly saving automatic.
Meanwhile, your money grows tax-free. One of the most powerful advantages of participating in a k is the money you save in taxes. Your k contributions are taken out of your paycheck before taxes are deducted from your paycheck.
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