401(k) Explained: How to Plan For Your Future “An investment in knowledge pays the best interest.”
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ne of the many benefits you receive when working with MedPro International is the option to open a 401(k) retirement account. In the United States, a 401(k) is an employer sponsored plan that allows you to save for your retirement. While it may seem far away, it is important to establish a plan that will allow you to be financially secure in retirement. Below are some answers to frequently asked questions to help you understand 401(k). 401(k) plans are one of the most popular retirement-saving tools in the US. What is a 401(k) plan and how does it work? A 401(k) plan is an employer-sponsored retirement savings plan that allows an employee to contribute a portion of his or her paycheck into an investment account. The contribution that the employee makes is “pre-tax”, meaning it reduces the income that is subject to federal income tax. The earnings in the investment account are also not subject to tax. The contributions and earnings are taxed when funds from the 401(k) are withdrawn (usually during retirement). How are contributions made? Contribution are taken out of each one of the employee’s paychecks. Because contributions are made pre-tax, the impact on an employee’s net (take-home) pay is less. For example, a $50
weekly contribution to a 401(k) may result in a $35 decrease in net pay. (The actual impact on net pay depends on several factors.) What are the benefits of investing in a 401(k) plan? There are several benefits to contributing to a 401(k). • Many 401(k) participants anticipate being in a lower tax bracket in retirement compared to their peak earning years. In these cases, participants save more taxes when they contribute than what they pay when they withdraw the funds later in life. • The money saved in a 401(k) plan grows and compounds more quickly because the total balance in the account isn’t taxed on a yearly basis. • MedPro makes an additional contribution (a “match”) to its employee’s 401(k), which provides an immediate gain for each employee. • Contributions to a 401(k) are a form of “forced savings” because the funds are deducted from employee paychecks before they are spent in other ways. What is an employer match? As part of our employee benefits package, and to encourage employees’ retirement saving, MedPro will match 25% of the employee’s contribution, up to
