The Benefits of Benefits: How Employer-Sponsored Retirement Plans Can Set You Up for Success

Lloyd Buckridge
Published Oct 31, 2023

Landing a job with great benefits can feel like winning the career lottery.

While a competitive salary keeps the lights on, robust benefits like employer-sponsored retirement plans help secure your financial future.

If you're weighing a job offer, the presence or absence of a 401(k) plan should factor into your decision.

Here's what you need to know about how employer-sponsored plans can benefit you.

Tax Savings Now, Financial Security Later 

The top reason to take advantage of an employer retirement plan is the immediate tax advantage.

Contributions come out of your paycheck before taxes are deducted, lowering your taxable income. For example, if you earn $50,000 a year and contribute 10% to your 401(k), you'd reduce your taxable income to $45,000.

The tax deferral helps your savings grow faster.

Another major perk is that investment gains in the account aren't taxed until you make withdrawals in retirement. This gives you decades of tax-deferred growth.

With the power of compounding interest, even modest contributions can snowball into a sizable nest egg down the road.

Scoring Free Money Through Employer Matches

One of the best parts of 401(k) plans is the potential for free money in the form of employer matching contributions.

Companies often match a percentage of employee contributions up to a set limit. So if your employer matches 50% of contributions up to 6% of your salary, and you earn $50,000 and contribute $3,000 (6%), you'd get an extra $1,500 deposited into your account.

That's like getting a raise just for saving for retirement!

More Ways to Come Out Ahead

401(k) plans have higher IRS contribution limits than IRAs, allowing you to save more.

For 2023, the contribution limit is $22,500 for those under 50. Those 50 and older can save an extra $7,500 with catch-up contributions. High income earners may also qualify for after-tax contributions with a 401(k).

401(k) balances are protected from bankruptcy, lawsuits, and creditors. You typically have a broader range of investment options than an IRA as well.

Overall, participating in an employer-sponsored plan can help you maximize retirement contributions and gain valuable benefits.

When evaluating a job offer, be sure to take a close look at the benefits package.

Having access to a 401(k) or similar plan can make a big difference in your ability to save and prepare for the future. Making the most of employer-sponsored plans now allows you to reap the rewards later on in life.

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