What is a qualified retirement plan?
A qualified retirement plan is a popular savings tool that millions of Americans use to help prepare for retirement.
An example of this is a 401(k) plan. Employees in this type of plan make pre-tax contributions to their retirement plan accounts through automatic deductions from their paychecks. Over time, savings may grow, helping you prepare for retirement. Your qualified retirement plan can provide you with a number of savings advantages, such as the potential for reduced taxes, the ability to take advantage of compound earnings and more.
And why is it important?
This plan has been set up by your employer. By participating in your company’s retirement plan, you’ll be able to take greater control of your financial future. You’ll also be able to take advantage of some attractive benefits the plan offers.
The potential to pay less in taxes
The more you contribute to your plan, the larger your retirement savings (and tax savings) may be.
Each 401(k) dollar you contribute to your retirement plan is taken from your paycheck before taxes are applied. This may lower your taxable income. It might even put you in a lower tax bracket.
The earnings on contributions to your plan grow tax-deferred until withdrawn. And since you may be in a lower tax bracket in retirement, you might pay less tax when the money is withdrawn than if you were taxed today.