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.
Article 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.
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