A qualified retirement
plan is a popular savings tool that millions of
Americans use to help prepare for retirement.
An example of this is a 401(k) plan.
Employees in this type of plan make pre-tax contributions to their retirement
plan accounts through automatic deductions from their paychecks. Over time,
savings may grow, helping you prepare for retirement. Your qualified retirement
plan can provide you with a number of savings advantages, such as the potential
for reduced taxes, the ability to take advantage of compound earnings and more.
And
why is it important?
This plan has been set up by your employer. By
participating in your company’s retirement plan, you’ll be able to take greater
control of your financial future. You’ll also be able to take advantage of some
attractive benefits the plan offers.
The
potential to pay less in taxes
The more you contribute to your plan, the
larger your retirement savings (and tax savings) may be.
Each 401(k) dollar you contribute to your
retirement plan is taken from your paycheck before taxes are applied. This may
lower your taxable income. It might even put you in a lower tax bracket.
The earnings on contributions to your plan
grow tax-deferred until withdrawn. And since you may be in a lower tax bracket
in retirement, you might pay less tax when the money is withdrawn than if you
were taxed today.
