Time to Max Out Those Retirement Plans

My parents and many of their contemporaries didn’t have to worry too much about saving for their retirement years, since many of them were covered by defined benefit plans funded by their employers.

My, how times have changed! Fewer and fewer employees are that lucky today. Instead, most of us are solely responsible for funding our golden years. Fortunately, Uncle Sam has provided a couple of vehicles that make it easy to save and come with significant tax advantages.

The first is a defined contribution plan – the 401(k), a savings and investing plan that Congress created via the Revenue Act of 1978. In this plan, the individual makes contributions, deducted from your paycheck on a pre-tax basis according to a stipulated formula. And then your employer may elect to match part or all of your contributions, in essence, giving you free money.

Right now, you can contribute up to 15% of your income to your 401(k) plan, which can over time add up to a lot of cruises, golf games and fancy retirement villas!

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