You don't pay taxes on the money you put in, you pay tax when you take it out. Since most people will be in a lower tax bracket when they're retired than when they're working, you would pay a lower percentage of tax, plus you get the time value (you're paying in cheaper dollars because of inflation, plus the money you put in draws more interest because there's more of it).
2007-01-03 09:43:21
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answer #1
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answered by Jim C 4
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Basically you are deferring income until you retire. You get to deduct contributions from your income, and when you draw money from the 401k upon retirement you are taxed at a rate that reflects your retirement income, not you current income. In theory, your tax bracket at retirement will be lower than it is now. Keep on saving!
2007-01-03 09:54:04
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answer #2
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answered by Chico 3
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An IRA with Vanguard, Fidelity and/or TR Price would work for this. A 401k plan contribution limit is more than 20k. An IRA limit is only 6k. Plus there is no matching contribution in an IRA. Given a 401k's advantages over an IRA, I hope you have a good reason, for not using your 401k??
2016-05-22 23:49:11
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answer #3
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answered by ? 4
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You dont pay income tax on the money until you withdraw it from the 401k.
2007-01-03 09:42:55
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answer #4
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answered by John G 4
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You pay into it "pre-tax." That means you will not be taxed on that money until your remove it from the plan. It will lower your monthly salary as far as the IRS is concerned, dropping your current tax burden.
2007-01-03 09:42:38
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answer #5
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answered by texascrazyhorse 4
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Contributions you make (up to each year's limit) are not taxable income, so that reduces your taxes in the year you make the contribution. When you retire, the money you take out is taxable as ordinary income.
2007-01-03 09:43:10
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answer #6
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answered by Dave 4
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this paper is so stupid huh but hard too huh
can't wait till we get this done this topic is so hard i'm still waiting on people to answer my question on HOW DOES A 401K PLAN AFFECT THE SAVING AND BANKING INDUSTRY
2007-01-03 10:00:39
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answer #7
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answered by Anonymous
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You dont pay tax on it when going from your pay check to the fund.
2007-01-03 09:43:30
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answer #8
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answered by Anonymous
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