Why Should I Invest in My Employer’s Retirement Plan?
Planning and saving for your retirement are essential, whether you
want to continue to work past retirement age or retire early. One of
the easiest ways to begin saving for retirement is to contribute to
your employer's retirement plan. If you have not taken advantage of
this opportunity, here are some reasons why you should:
Tax-Deferred Status
Money you contribute into a qualified retirement plan is not
considered part of your taxable income. The money is allowed to grow,
tax-free, until the time you begin taking distributions. To preserve
the tax-deferred status, you may not take withdrawals from your account
until you reach 59.5 years old. Early withdrawals are penalized by
federal tax law, and the money will be considered part of your taxable
income for state and federal tax purposes.
Payroll Pre-Tax Deductions
The contributions you make to the qualified retirement plan are
generally taken from your paycheck before taxes are taken. This is
beneficial for several reasons. First, the amount of your contribution
may not lower the overall amount of your take-home pay as much as you
might think. There are calculators available that will show you the
difference in your take-home pay depending on the amount of pre-tax
dollars you contribute to your retirement. Second, your contributions
are automatically taken from your pay each pay period, meaning you have
to do nothing other than select your election amount. Third, your
contribution will lower the overall amount of your taxable income,
meaning there will be less money subject to state and federal taxes
each pay period.
Employer Matches
Most employers offer to match their employees' contributions to
their retirement plans, up to a certain percentage. Employers receive
nice tax incentives for their generosity and you receive a boost to
your retirement savings, sometimes up to as much as 5%. If you are able
to do so, you should contribute at least up to the amount of your
employer's match to maximize your retirement savings.
Social Security Will Not Be Enough
Many Americans are relying on Social Security benefits to take care
of them during retirement and are discovering the monthly amounts are
not enough to financially cover of all of their needs. While estimates
vary widely depending on the source, you will need anywhere between
60%-100% of your current income to retire, depending on the type of
lifestyle you want to maintain. This could mean you will need to save
enough money to live on for 30 or more years. This is why it is
important to begin saving early and to take every opportunity available
to add to your retirement savings.
Participating in your employer's retirement plan should be the
starting point for building your retirement savings. Depending on your
financial situation and retirement goals, you also may want to invest
in IRAs, Roth IRAs and other vehicles to maximize your savings.
DISCLAIMER: This site and any information
contained herein are intended for informational purposes only and
should not be construed as legal advice. Seek competent counsel for
advice on any legal matter.
