A 401k Plan can be set up through your employer as it involves having money taken out of your pay check each month. It is an employer-sponsored savings plan that helps individuals save money for their retirement. Get in touch with your employer if you want to start saving for your retirement today.
Schemes such as the 401k Plan are very popular among many US workers who are thinking about their retirement. Although retiring may seem a long time away, it is better to start saving as soon as possible as the benefits in later life will certainly be reaped.
This plan is part of a group of retirement plans known as the ‘defined contribution plans’ as the amount that is contributed is defined by the employee (also known as the participant) or the employer.
So how does the plan work? Basically it allows participants to save money on a tax-deferred basis. This means they will not have any federal or state income tax until the money is actually withdrawn at retirement. This has a number of benefits as less taxes are paid in the present moment and as most people will have a lower taxable income at retirement age, this also means they will have a lower tax rate. Consequently, those lower taxes will have to paid when taking out the money at retirement age than what would be paid if the participant was simply keeping the money rather than investing it in a scheme.
A contribution is deducted each month from your pay check before any taxes are withdrawn. This means that you have a lower income and therefore a smaller amount of tax to pay.
Most savers will keep their money in the scheme until they reach the age of 59 1/2. It is possible to transfer to another scheme if the participant changes employers too.
Schemes such as the 401k Plan are very popular among many US workers who are thinking about their retirement. Although retiring may seem a long time away, it is better to start saving as soon as possible as the benefits in later life will certainly be reaped.
This plan is part of a group of retirement plans known as the ‘defined contribution plans’ as the amount that is contributed is defined by the employee (also known as the participant) or the employer.
So how does the plan work? Basically it allows participants to save money on a tax-deferred basis. This means they will not have any federal or state income tax until the money is actually withdrawn at retirement. This has a number of benefits as less taxes are paid in the present moment and as most people will have a lower taxable income at retirement age, this also means they will have a lower tax rate. Consequently, those lower taxes will have to paid when taking out the money at retirement age than what would be paid if the participant was simply keeping the money rather than investing it in a scheme.
A contribution is deducted each month from your pay check before any taxes are withdrawn. This means that you have a lower income and therefore a smaller amount of tax to pay.
Most savers will keep their money in the scheme until they reach the age of 59 1/2. It is possible to transfer to another scheme if the participant changes employers too.
