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The Benefits of a 401(k)
A 401(k) plan has some advantages that other retirement investments may not offer. Here are some of the advantages to participating in a 401(k).
ï Tax-deferred contributions and earnings ó This combination makes a significant impact on your retirement plan. The money you contribute to your 401(k) is taken before being taxed. You don't pay taxes on any of this money until you start taking withdrawals. And please remember, neither NationwideÆ nor any of itís representatives give tax or legal advice. Federal tax laws are complex and subject to change. Please consult with your tax or legal advisor for answers to your specific questions.
ï Reduced taxes while making contributions Since the money you contribute to your 401(k) is taken out of your pay before taxes, the amount you pay in federal, state and local taxes is decreased currently.
ï Instant investingó A 401(k) is an easy way to save for retirement. Your contributions are automatically deducted from your pay, so you don't have to do anything until you're ready to retire.
Tax Changes
While including a 401(k) in your retirement toolbox has always been a great idea, recent changes to the tax laws now make it an even more valuable tool. The Economic Growth and Tax Relief Reconciliation Act of 2001 includes changes that allow you to save more, as well as making up for lost time with catch-up contributions.
Through 2001, the maximum pre-tax amount you could contribute to a 401(k) was $10,500 each year. By 2006, you'll be able to contribute up to $15,000 annually. After 2006, the maximum limit will be increased by $500 each year to account for the effect of inflation.
If you are age 50 or older, the new tax bill also provides you with an opportunity to "catch up" on conservative investments you may have made earlier in your life. If you've made the maximum allowable pre-tax contribution to your plan, this catch-up provision allows you to make additional contributions.
A 401(k) can be an integral tool in building what everyone hopes to have ó a comfortable retirement. Talk with your investment professional about your 401(k) options and learn more about how a 401(k) may be able to help you create a more secure financial future.
For more information regarding your investment portfolio, please contact Tom McAlister at NationwideÆ Insurance at 256-232-7200.
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