When I started working full time, I had lots of priorities: student loans, rent, food, and of course, entertainment. Retirement savings didn’t even make the list. Then I got a job where my employer contributed fifty cents for every dollar I put into the company’s defined contribution retirement plan. Your employer might offer a 457, 401(a), 401(k) or 403(b) plan.
Depending on the type of retirement plan, like a 457 plan, for example, an employer match might not be available. And in today’s economy, some employers might have decided to suspend matching.
Even if they don’t match, it’s still a way to save. When I became eligible to enroll in the plan, I took them up on the offer. I realized that for every $100 I saved, my employer would be paying me $50 — and that’s before taxes were taken out.
You see, contributing to my employer’s retirement plan was a way for me to save pre-tax dollars — deferring my tax liability until I decided to withdraw money from my retirement account and reducing my taxable income. In other words, I’ll wait until I retire to tap into this money and then pay taxes on it.
But what made my decision to enroll even easier was the prospect of automatic deductions into my retirement account. I wouldn’t have to worry about writing a check or putting aside extra money.
How much could I contribute to my retirement account? At my entry-level salary, it seemed limitless, but depending on your circumstances you will want to know what limits apply. The IRS sets the limits on how much your employer’s retirement plan will allow you to contribute each year. In 2010, you can contribute up to $16,500 of your salary toward your 457 or 401(k) plan.
Each retirement plan has different features, but a quick trip to your human resources department can help get you started with putting your employer’s retirement plan to work for you.