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How Retirement Plans Work
Your company-sponsored retirement plan accepts contributions from you and puts them into individual investment accounts on your behalf.
Each time you make a contribution (which may be referred to as a salary deferral or elective deferral contribution), you'll be investing in a brighter future and a more secure retirement.
Payroll deduction allows you to make contributions from your pay automatically and, when it's automatically deducted, you don't miss the money. Contributing to your retirement plan is the easiest way to save for your retirement.
In most cases, the money you put into your retirement plan is not taxed as income until it is withdrawn. With every paycheck you are lowering the amount of taxes you pay, while saving more for your retirement. Use the payroll deductions calculator to see how the money you put in the plan impacts your take-home paycheck.
The longer you contribute and save without withdrawing your money, the more you are likely to build up to support yourself when you retire. Your retirement savings today will become a source of income replacement in the future.
Most retirement plans allow you to choose how you invest your money. These might include cash equivalents, bonds, stock and mutual funds. You can decide exactly how aggressive or conservative you want to be. This flexibility gives you control over your financial situation now and in retirement.
Many plans provide an employer match—a predetermined amount of money your employer will contribute once you've decided to participate at a certain level. This option varies from company to company, but if your company offers a 3% match, for example, it's free money for you and like getting a 3% raise.
To receive your employer match, you'll be required to contribute an established minimum amount (or percentage) into your plan. If you quit your job, you can take the employer match with you only if you are vested. To be vested, you have to meet predetermined plan qualifications, normally based on your length of service at your company. If you leave before vesting occurs, you'll always be able to take 100% of your contributions with you.
Talk to a Retirement Specialist
The rules on how to contribute, how much to contribute, taxes and penalties vary according to the type of retirement account your company has purchased. For additional information, contact our retirement specialists today. We can help you understand your plan and get started.