We are now on week 3 of our 4-week discussion. Last week we discussed how automatic payroll deduction makes it easy to save with your 401(k). This week we will discuss yet another reason why contributing to your plan is a great decision!
Reason number 3: Tax Breaks – Contributing to your 401(k) plan can reduce your taxable income. The IRS allows you to put a maximum of $16,500 every year into a 401(k) plan (this number remains unchanged from 2009 to 2010). By contributing to your 401(k), you may be able to push yourself into a lower tax bracket, where you pay a lower tax rate. Note that if you take money out of your plan before you reach age 59 1/2, you may have to pay a penalty tax in addition to income tax on the money and profits.
A 401(k) is the best way to reduce your taxable income and benefit yourself at the same time. It can help you put more of your money towards creating a future for you and your family rather than paying the government. You will be saving yourself money now for later! Why not take advantage of this?
Stay posted to Moneytoolsforlife.com for more reasons to contribute to your 401(k) plan. Next week we will end our discussion with a 4th and final motivation to contribute!