When young people who have just graduated from college or high school begin their first professional career, they often do not think about saving money through a retirement plan. After all, the average person will work for more than 40 years before they call it quits – why not start saving in your 30s or 40s and enjoy the extra capital now? However, employee benefits are important when it comes to retirement plans, and there are a few ways you can tweak your current strategy to deal with higher taxes in the future.
For example, the tax cuts put in place by the Bush Jr. Administration will expire at the end of 2012. This is bad news for people holding a traditional 401(k)plan, as income taxes are set to increase exponentially if Barack Obama does not renew the plan. Therefore, it might be prudent to consider a Roth 401(k). The Huffington Post reports this altered 401(k) requires participants to pay taxes immediately rather than put them on hold, which is good for people who anticipate higher taxes in the future. In addition, any investment within the account is not taxed so long as it remains there for over five years.
If you fall into the lower income bracket, you might want to see if your company offers what is called a Safe-Harbor 401(k). This particular plan requires companies to match a minimum of employees' contribution to a 401(k), which is typically 3 percent. These mandatory donations will also be available for immediate use, which is good news for older employees looking to cash in soon.
Understanding the different types of 401(k) plans is essential to making informed decisions about retirement.
