Most of us find it difficult to save money these days with the prices of goods and services seemingly increasing at the speed of light. It is also for that same reason that some people do not take advantage of saving with their employer’s deferred tax savings plan. Some people also think that they can’t save which, for most of us, is simply not true. While everyone’s financial situation is definitely different, many of us can find at least a few dollars to save each month. This post looks at five advantages that we as employees can enjoy when we save through these types of employer-sponsored plans.
- You can get free money. That’s right! Many employers match their employees’ investments up to a predetermined maximum percentage. That’s free money added to your savings to help you meet your retirement income goals. I know that for some of you, retirement is the furthest thought from your mind. Take it from someone who was once in your shoes. It rolls around much more quickly than you could ever imagine. It really hit me a few years ago when I left one job for another and wanted to roll my investments over to another qualifying plan. I was thoroughly surprised at how much I had saved…thanks to my former employer’s matching dollars based on the percentage of my income that I had invested. By the way, you can also change the investment strategy as needed. vendors typically have certain types of strategies that you an passively subscribed to based on your age and planned retirement date. The closer you get to your retirement target date, the less risk your passive plan will take on; however, you can always change how your money is invested and move it back to a higher risk plan if you wish.
- You get to save almost any amount, up to an IRS regulated maximum. Whether you have a lot of disposable income that you can choose to save, or if you have only a small amount. Theses plans are meant to encourage us to save. Also, if it is a voluntary plan, you can typically start and stop contributions at your discretion. So, lets say, summer break is approaching and you know that all day childcare is going to put a strain on your budget. Although I don’t encourage it, you may choose to stop your contributions during that time. Meanwhile, your contributions that you have already made will continue to earn interest and grow.
- By saving through these plans, we reduce our taxable income. When our taxable income is lower, our tax liability is lower which decreases the amount of tax that we must pay on our income at tax time each year. Believe it or not, you sometimes end up bringing home a slightly larger paycheck when you save through these types of plans. The reason this may be possible is that tax deferred means that your employer deducts your savings from your paycheck before taxes and contributes those funds to your tax-deferred savings plan. Because no taxes were taken out of your check yet, this leave a larger amount to tax than there would have been if your savings had been deducted after the taxes were taken out.
- If you experience a qualifying hardship like medical needs or other circumstances, you can often take out a no-interest loan that you borrow from you own money, then pay back via payroll deductions. Imagine not having to go through a financial institution to apply for a loan. That is pretty exciting to think about a no-interest loan. Some programs even let you withdraw up to a certain amount for the purchase of a new home without the usual additional tax penalty.
- Another type of tax-deferred savings plan offered by employers is the 529 education savings plan that many US employers offer. It allows employers to save for their childrens’ education with pre-tax dollars that are payroll deducted and invested for the employee until the time comes to send “Junior” and “Juniorette” off to college.
- Your saving in these plans also help to boost your personal net worth.
So see there are many reasons why we employees should take advantage of our employers’ tax deferred savings plans. Even if you only save $20 per pay period and you get paid by weekly, at the end of a full year, you will have saved $1K+. That may not seem like a lot, but I’d rather have $1K saved as opposed to $0 saved. Bottom line, start saving a small amount if you can only do that, see how you like seeing your dollars grow, then, I guarantee that you will be motivated to find creative ways to save even more. I know that many of my subscribers are currently searching for their next career opportunity, so when you start your new job, consider starting your savings plan as soon as you are eligible to participate in your new employer’s plan. Let’s all get to saving.
Happy Career Searching and Saving to All!
Original post on HR by Nnamtique at https://nnamtique.com.
