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Step 1
Lowering your current taxable income: Contributions to your plan account are before tax. That means they are made before taxes are taken out of your paycheck. The advantage here is when you contribute before tax dollars to your 401K plan, you lower your taxable income. Plus you won't pay taxes on your savings until you take it out. The sooner you take advantage of this tax break, the more money you could save in the long run.
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Step 2
Accelerated saving: If you are age 50 or older, The IRS has a provision allowing you to contribute to your 401k above and beyond the typical dollar limits set for your 401k plan. Catch up contribution provisions offer an opportunity to accelerate saving by allowing you to contribute even more to the plan. These contributions are also pre tax meaning you could see an even bigger tax break than if you are contributing the maximum amount.
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Step 3
Free money: If your employer offers matching contributions, you’ll enjoy watching your account grow even faster. The standard is a 50% match on every dollar up to 6% of your gross income. This essentially equates to a 50% return right away. I guarantee there aren't too many investments that will generate that kind of return.
