Employee benefits of a Qualified Retirement Plan

Employer Sponsored Retirement Plans

Employee benefits of a retirement plan

A retirement plan offers many benefits to employees:

1. Pre-Tax Contributions: One significant benefits is that contributions made by employees on a pre-tax basis are tax deferred and will reduce your taxable income. Likewise the growth of your investments from dividends and interest grow tax deferred. As a result, you will not pay taxes on your contributions or their earnings until you withdraw money from the plan.

2. Employer Contributions: If your employer makes contributions into the plan, these contributions are made on a pre-tax basis. As with your pre-tax contributions, taxes on these contributions and all earning will be deferred until withdrawals are made.

3. Roth Contributions: Your employer’s retirement plan may allow you to make contributions on an after-tax (Roth) basis. While you will not receive any tax benefits at the time of your contribution, these contributions are the earning from these contributions will NIOT be taxed when you withdraw these funds.

4. Long-Term Compounding: Retirement plans offer employees the benefit of long-term compounding. The sooner a participant starts a retirement plan, the more secure you and your employees will be later in life. For example, contributing $5,000 annually for a 30 year period can provide an additional $500,000* of assets in retirement. Start 10 years later and you could have 60% less resources available at retirement.

5. Supersized Retirement Returns: Investing into retirement plans grow faster when compared to after tax investing. Because of pre-tax contributions and tax free compounding, retirement assets grow faster in a retirement plans than assets invested in after tax accounts.

6. Creditor Protection: In most cases, contributions and account balances are protected from creditors making these assets off limits should funds be required to satisfy your outstanding debts.

7. Catch-Up Provision: If you are 50 years old or older you are eligible for a catch-up provision each year. This allows you to make up for earlier years in your career when you may not have had the funds available to save for retirement. The catch-up provision for 2016 is $6,000.

8. Payroll Deductions: Participation in your employer’s retirement plan is painless, easy way to save for retirement. With deductions made automatically each time you are paid, you no longer need to remind yourself to save.

Participating in your employer’s retirement plan is a convenient and reliable way to save. With contributions coming directly from your paycheck. The temptation to spend this money or skip a contribution is eliminated.

*: Assumes a compounded 8% annual return rate.