Those who are planning their retirement investments would be searching for before tax retirement savings plan. Although there are quite a lot of different plans that you may consider for your retirement, one of the best and the most popular one today is the 401K saving plan. This plan is offered to employees by the employers in the US and it offers several great benefits.
Tax Benefits
One of the biggest benefits of the 401K is that it is one of the before tax retirement savings plans. The contributions to the plan would be made pre-tax. You will be allowed to make contributions to the plan as an employee through your salary. Because these contributions are done before tax, you will not be required to pay any taxes on your contribution. Before tax retirement savings plans can provide you a reduction in tax liability when you contribute to them. Also, the money that would be saved in your account would continue to earn interest for you and would also be tax-deferred. The only tax that you will have to pay is on the money that you may withdraw from your plan later on as your regular income.
Employer Match
With 401K, quite a lot of companies offer additional benefits to the employees. Employer match is one such benefit where the employer would also contribute to the investment plan to match the contributions that you make to it. While some employers may pay a percentage of the contributions that you make, others may pay the exact amount that you pay with each contribution. The company may also have a schedule fixed where you would have to work for their company for a pre-determined time before you would be able to collect the deposits made by the company.
The Choices Available
With 401K investment plans you will be able to invest your retirement money in various different ways. You may invest in brokerage accounts that are self-directed, company stock, guaranteed investments, annuities, money markets, bonds or in stocks and mutual funds. Most of the plans will offer you a selection of options so that you can select something that you are comfortable with. In most cases you can withdraw money from your investment account in case of death, retirement, upon reaching the specified age of 55 or 59 ½, disability or when you terminate your employment. In various cases you will have to pay a penalty of 10% for early withdrawal if you withdraw the funds earlier than the maturity age.
With before tax retirement savings plans like the 401K, you will be able to enjoy tax benefits as well as a safe retirement pool that you can rely on for the future.
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