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Finance For Dummies

Finance For Dummies offers personal finance information on investing, retirement investing, finance, insurance, credit cards, loans and more. Personal finance education is our goal.

Sunday, September 10, 2006

Pre-Tax Savings

As stated before contributing to tax-deffered savings plans can help you when the taxman comes calling. The government entices people to save for retirement by allowing pre-tax contributions. Because it is pre-tax it will affect your bottom line of how much money you will take home.

Take two people: both gross $75,000. One sets aside 8% ($6,000) of pre-tax wages in a brokerage account while the other contributes 8% to a 401k at work. Both save the same amount of moeny, but the one contributing to the 401k takes home almost $2,000 more per year. That can make a big difference in the short and long term.

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