In earlier days, employers used to offer specialized pension plans to employees. The plan was offered to support workers post retirement. However, many employers have put a ban on this facility. In place of the retirement plan, companies have come up with a new solution. This is referred to as a 401(k) retirement plan. According to Ed Lloyd & Associates PLLC, the popular tax experts, specializing in supporting business owners and managers with accounting services and tax services, a 401(k) plan helps one be completely in charge of the retirement account. This indicates that an employee is in command of the amount of money they can have towards retirement.
A 401(k) is a retirement account. It is established by the employer for his employee. Upon enrolling, the employee decides on allotting a specific percentage of regular paycheck towards the account. The contribution is placed towards the pre-determined goals for retirement and risk tolerance. So once you retire, the money you put in the account will be accessible for supporting your day to day living expenses.
Ed Lloyd CPA, CEO of the company says that contributions to the retirement account are tax-deferred. These are deducted from the regular paycheck and reach directly to employee’s account prior to the tax deductions. So this means, if your salary is $60,000 annually, and you contribute $4,000 to the 401(k), you are liable to pay $56,000 as income tax next April in place of $60,000 that you had earned last year.
At the time of withdrawing money from 401(k), it will be subjected to taxes. However, the good news is that you will be in the lower bracket of tax deduction owing to your retirement status. In order to apply for the benefit, you can check the details with the human resources department of your organization. As per Edward Lloyd, this account will be highly beneficial for you initially as a tax payer and after retirement when you need money.
To know more about tax savings and retirement plans, read – Simple yet Effective Ways to Reduce your Taxes on Retirement Savings by Ed Lloyd & Associates