The 401k Advantage

Social Security benefits are in the news as its funding and longevity has come into question. If you are depending on social security, you may need to look into other options to help fund your retirement and give you the lifestyle you’ve planned on.

One of those options is 401k plans, which offer a tax deferred option to save money for retirement, while providing significant advantages over other retirement options such as IRAs. 401(k) plans have the following attractive advantages:

 

  • 401(k) plans provide an opportunity to lower your taxable income as contributions are withheld from your paycheck before income taxes are deducted, thus lowering your taxes. Your taxable income is less and you defer paying taxes until you withdraw your money at retirement.
  • Your money and earnings will grow tax free until you withdraw the funds. Although you will eventually be taxed when you withdraw your money, you could still save money on taxes as you may be in a lower tax bracket after retirement.
  • Contribution limits for 401(k) plans are typically higher than other retirement account options. You may contribute up to $17,500 to your 401(k) in 2014.
  • Many employers offer to match employee 401(k) contributions. You are passing up free money if you don’t participate and contribute at least enough to qualify for your employer’s match.
  • Many 401(k) plans allow participants to take loans and hardship withdrawals from their 401(k) accounts to pay for education or medical expenses or for other financial hardships.

If you are interested in learning more about 401(k) plans, contact your MKS&H tax advisor.


 

Jessica Sipple_2Article contributed by Jessica Sipple, MKS&H Staff Accountant

About MKS&H: McLean, Koehler, Sparks & Hammond (MKS&H) is a professional service firm with offices in Hunt Valley and Frederick. MKS&H helps owners and organizational leaders become more successful by advising them regarding their financial, technology and human capital management needs.

 

Like what you read? Sign-up for our C-Suite Spotlight Program.

 

About Author

MKS&H

MKS&H is committed to providing personalized tax and accounting services while developing a deep understanding of you, your culture, and your business goals. Our full view of financial systems and the people behind them allow us create and evolve the best solution that will help you and your business thrive. The accounting experts and consulting professionals at MKS&H work together to help you achieve the financial results you want.

Related posts

What Is IRS Form 5471?

While you might be currently living overseas, that does not mean that you are free from the tax obligations of being an American citizen. Even if you work overseas, there are still tax forms that you are required to file. One of those is known as IRS Form 5471....

Read More