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Five Reasons to Contribute to your Retirement Plan at Work

Contributing to you retirement plan at work should seem like a foregone conclusion. Unless you absolutely cannot contribute to a retirement plan, you should set aside as much as possible when planning for your future. Let’s take a deeper look at why this is a good idea

  1. Pre-tax contributions to a 401 (k) plan are not taxed as current income. These contributions come right out of your salary before taxes are withheld, which reduces your taxable income, allowing you to pay less in taxes each year. You will pay tax on amounts you eventually withdraw from the plan, but you may be in a lower tax bracket by that point and you may also qualify for partial tax credits for amounts you have contributed.
  2. Money in your 401 (k) grows tax deferred. As long as assets remain inside the plan, the investment earnings are not taxed. The only time they will be taxed is when you withdraw from the plan, but, again, you may be at a lower tax bracket by that point. Keeping your money in the 401 (k) gives you the opportunity to grow a substantial balance over the long term.
  3. Many employers will match contributions. This isn’t true for all companies, but if you’re fortunate, your employer may match contributions up to a certain level. Employer contributions are also pretax. Think of it this way, if your company offers contribution matching and you don’t participate, you’re basically walking away from money your employer is offering to you.
  4. You can borrow against it. Many 401 (k) plans offer the opportunity to borrow against the vested balance to pay off high-interest debts or perhaps other large expenses that may arise. You won’t be taxed or penalized on borrowed amounts as long as the loan is repaid within five years. You may need to pay the loan off immediately if you leave your current employer, however.
  5. 401 (k)s are reliable and flexible. You decide what percentage you want to save or how much of your salary you’d like to contribute (within allowable limits, of course.) The best part is that you don’t really have to think about your investment once you initially set it up. Everything is automatically deducted and the temptation to spend money you would otherwise put away isn’t there.

Of course, these are very simplified reasons to invest at work. Please speak with your individual employer for more information and be sure to contact Steel Valley Investment Group of Raymond James with additional questions.

Opinions expressed are not necessarily those of Raymond James & Associates. Information contained was received from sources believed to be reliable, but accuracy is not guaranteed. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Past performance may not be indicative of future results. Changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of Raymond James & Associates we are not qualified to render advice on tax or legal matters.

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