The Pre-Tax Savings Advantage

The Pre-Tax Savings Advantage

Pre-tax savings provided by employer retirement accounts is one of the easiest ways to start saving for retirement even if your finances are tight. In the example below I will show the benefits by comparing two individuals both earning the same salary of $25,000 a year.

Pre-Tax Savings

* Based on 2004 single unmarried tax rates and does not take into account state and local taxes.
** Assumes a 100% match on first $500 and 50% match up to 3% of total salary.

As we see here, by taking advantage of contributing to the retirement plan the saver can save $2,000 on roughly $50 per bi-weekly paycheck. Not only that, but thanks to the pre-tax savings the total take home pay was only reduced by $1,063. Thanks to the pre-tax benefit and company match it only costs $0.53 to contribute $1 towards retirement savings!

Not all employer sponsored retirement plans are created equal, so your actual results may vary and this is a general example to show the power of pre-tax savings. Some employers do not offer a match at all, others match dollar for dollar on all contributions up to a certain percentage of earnings. The bottom line is that if your employer does offer a match, take advantage of it. That combined with the pre-tax saving will make saving for retirement painless even if you feel like you are unable to save.

Author: Jeremy Vohwinkle

My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.

Are you a dad who is not seeing your kids?

If you are a father who has lost a relationship with your children, you have come to the right place. Be sure to follow along as GenXFinance grows up into the next stage of life.

Follow

Recent Posts

It was time, GenXFinance had to eventually grow up. Now I'm helping dads who are experiencing what I have gone through.