Pre-tax Contributions

More reasons to save.

When you make contributions in the 401(k) Plan, it actually doesn’t cost you a dollar to save a dollar. (To see how it works, refer to the chart above.)

What's the message here? You are paying fewer taxes because your contribution is pre-tax – that is, before taxes are taken out. As a result, your withholding is lower. Your $100 contribution to the 401(k) Plan costs you only $72!

NOTE: Assume a federal income tax rate of 28%. In some states, 401(k) Plan participants may benefit from state tax savings, also. Numbers shown in the example are not intended to represent a specific employee but are shown only for illustrative purposes.

So, in this example, it’s easy to see how it does not cost you a dollar to save a dollar.

Your contributions are taken out of your paycheck on a pre-tax basis, which means those contributions are not subject to federal income tax or most state and local income taxes when made. As a result, your take home pay is reduced by less than the amount of your contribution. NOTE: Any withdrawals or distributions you receive from the 401(k) Plan will be included in your taxable income when distributed to you.

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