RLF Enrollment - Web Book - Ready - Flipbook - Page 14
2.
YOUR RETIREMENT SAVINGS PLAN
PROVIDES THE POWER TO PREPARE
Your retirement savings plan provides one of the
most convenient ways to save money. Your contributions (that is, the money you put into the account)
are deducted automatically from your paycheck —
and what you don’t see, you won’t spend. For many
people — particularly those who have difficulty
saving money — payroll deductions are a great way
to build savings.
You’ll Probably Keep More Than You Think …
Your contribution will reduce your take home pay,
but because they are made with pretax dollars, they
reduce your take-home pay by less than you might
think.
…While Postponing Tax Payments to Uncle Sam
Your retirement savings plan also allows you to s
helter your nest-egg earnings from taxes until you
retire. That means that you don’t have to pay taxes
on your contributions and earnings until you
withdraw the money.
This process — postponing taxes on your plan
contributions and earnings — is known as tax
deferral. You’ll have to pay taxes eventually, but if
you wait until retirement to withdraw the money,
you may come out ahead — especially if you are in a
lower tax bracket.
Say you are in the 24% federal income tax
bracket. For every $100 you contribute to your plan,
your taxes are reduced by $24. So each $100
contribution will only “feel” like $76 in terms of what
you miss from your take-home pay.
DID YOU KNOW?
BUZZWORDS
Dividends: A portion of profits
that a corporation may pay
These examples are hypothetical. Calculations have been simplified for illustrative purposes. They are
based on a 28% federal income tax rate, but do not take into account state taxes or other withholdings
that may affect your tax situation. Withdrawals will be taxed at then-current rates. Early withdrawals
prior to age 59ó may be subject to a penalty tax.
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