After working hard for decades, we all deserve to relax, travel, focus on hobbies, and enjoy more time with family. However, to live comfortably later in life, workers must start saving money and develop good financial habits early in their careers.
At its core, saving for retirement or another financial goal is an investment in one’s future, but sometimes it can be challenging to plan far in advance and calculate how much money to save.
While the percentage of American workers who feel confident they will have sufficient funds for retirement has risen steadily in recent years, only 27% feel very confident about how much they have saved.
If you are part of the percentage that feels less confident about your financial goals, don’t fret there are several options to explore to start saving for your future. It’s all about finding a realistic plan that works best for you, as long as you start early and commit to your contributions.
At Custom Aire, we do everything we can to help our employees be financially stable after they leave the workforce. We appreciate the hard work and dedication our team members bring to our company each day, and feel strongly that they deserve to have the opportunity to live worry-free once they retire. That’s why we offer our employees traditional 401(k) and Roth 401(k) retirement contribution options. Let’s explain how these plans differ.
While traditional 401(k) contributions are made before tax dollars, Roth contributions are made on an after-tax basis. Both of these plans allow contributions to come automatically out of your paycheck, but because every individuals current and projected future circumstances will be different, its important to review your options as thoroughly as possible. Its also beneficial to consult with a financial advisor to tailor your plans specifically to your needs to make the most out of your efforts and contributions.
Because Roth 401(k) contributions are made with after-tax dollars, there is no income or penalty tax due on withdrawals from the plan if distributions are made in accordance with the eligibility requirements. These requirements include the account being held at least five years and the individual being at least 59.5 years old, or in the event of severed employment due to disability or death. If a distribution is made from your Roth 401(k) account not in compliance with these requirements, you will generally pay income tax in addition to a penalty tax of 10% on any earnings distributed.
When selecting the plan that best suits your needs, determine which one will more appropriately benefit your unique situation. For example, if you expect that you will be in a higher tax bracket once you reach retirement, a Roth 401(k) plan may make more sense for you, since that option allows you to pay taxes on contributions at the time they were made, which would presumably be lower rates than you would expect at retirement.
On the opposite end of the spectrum, if you foresee being in a lower tax bracket upon retiring, the traditional 401(k) plan on a before-tax dollar basis may be the better route as the tax burden would likely be lower at the time of distribution, typically at retirement.
No matter which type of contribution you determine is better for you, the most important part is to begin saving early to set yourself up for a successful and comfortable future. If you actively participate and remain dedicated to your plan, you will be well on your way to financial security after you’ve left the workforce.
If you are interested in working for a company that prioritizes career development and growth for its employees, as well as helping to set them up for a successful future and retirement plan, consider a career with Custom Aire. View our careers page to review our employee benefits and look at current job openings, or feel free to contact us for more information.