401(k) Benefits

401(k) Plan Benefits

You may contribute a percentage of your gross pay every check date. The percentage you select may be changed during specified open enrollment periods. The minimum contribution is 1%.

You receive tax savings now with pretax contributions the amounts you elect to put in the plan reduce your taxable income. Thus you will immediately have less tax withheld. And, at year-end, your W-2 income subject to federal income tax is reduced by the total amount you placed into the 401(k) plan.

Some plans allow for Roth 401(k) contributions, which are contributions made post-tax but have an opportunity to have tax-free earnings when distributed if certain conditions are met.

Convenient payroll-deduction saving through a 401(k) plan is easy. The company simply deducts the amount you have elected and puts it in the plan for you. Let's take a look at how a 401(k) plan works.

How a 401(k) Plan Works

To get started, you elect to have your company place a percentage of your pay in the employer-sponsored 401(k) plan. Based on the amount you put in the plan, the company may also match a certain percentage of your contribution. This amount will also be placed in the plan.

Both your pretax contributions and contributions made by the company will grow tax-deferred until you withdraw the money from the plan. When you retire, the plan dollars and earnings will help provide you with the income you need to enjoy a financially secure retirement. Some plans allow for Roth 401(k) contributions, which are contributions made post-tax but have an opportunity to have tax-free earnings when distributed if certain conditions are met.

Many people underestimate the value of being able to save through tax-deferred investments like a 401(k) plan. To illustrate how modest amounts can grow to sizeable sums, let's look at an example.

Annual Contribution:

$2,000.00

Rate of Return:

8%

Years to Retirement:

30

Estimated value of investments at retirement

Tax-Deferred Investment:

$236,268.87

Taxable Investment:

$152,560.74

Difference:

$83,708.13

In this scenario, the tax benefits of your retirement plan provide you the opportunity to accumulate $83,708.13 more than you would without a tax-deferred investment vehicle!

* Based on a 27.5% federal tax rate.

If your plan allows Roth 401(k) salary deferrals, go to the Retirement Planning page and use the Roth 401(k) calculator to see the benefits of contributing to Roth 401(k) compared to making pretax contributions. Depending on your situation, one or the other may be more advantageous.

Saving hundreds or thousands of dollars on a regular basis may seem next to impossible. However, setting up a regular savings program through a 401(k) plan is easy to do and you will be surprised how affordable it is.

You don't need to save large amounts to benefit from the 401(k) plan. You can decide how much or how little you want to save, and you can change your contribution amount. The important part of investing for a secure future is to commit to saving on a regular basis. By participating in the 401(k) plan, you maximize your savings opportunities.

You Control Your 401(k) Investment

It's Easy