The primary objective of investing money in a retirement plan is to provision for our income needs once we retire. The earlier we invest money in a plan, the more appreciation we can expect to earn by the time we withdraw funds for retirement. Most of us have been exposed to the concept of compounding, which is something that we can fully benefit from with investments made into retirement accounts early on in our wage-earning years.
Beyond the benefits we enjoy at the time of retirement, however, there are also benefits we can realize when we make our initial investments into these retirement plans. With both 401(k) and Traditional IRA’s, contributions (with certain caveats) are tax-deductible – i.e., they are made with pre-tax dollars. Investors do not pay taxes on earnings from these investments until they withdraw the funds.
VisualCalc’s Income Withholding Calculator helps you estimate the amount of federal income tax you will save by investing some of your earnings into a qualified retirement plan.
