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Tax advantage of many employer retirement plans

Radio Transcript, 60 seconds, for use during week of Feb. 4.

This is an Invest Wisely minute brought to you by Iowa State University Extension.

Signing up for your company’s 401(k) plan is a great way to get a tax break and save for retirement.  You won’t pay tax on your contribution until you take the money out at retirement. Typically this gives you more money to invest.

For example, if you have $4,000 (four thousand dollars) to put into a 401(k) plan each year, you can invest the entire amount.  But if you paid taxes on that income first, you might only have maybe $2,800 ( two thousand eight hundred dollars) to invest each year.  The exact amount would depend on your tax bracket.

This tax deferral is an excellent reason to take advantage of employer defined contribution retirement plans.

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Updated February 11, 2008