Before TAX or After TAX? the 401(k) Question B enefits T raining

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Presentation transcript:

Before TAX or After TAX? the 401(k) Question B enefits T raining A dvantage

AGENDA  Pre-Tax Vs. After-Tax Investing  Turning $100 into $174 by investing before TAX  How to give 65% of all of your savings to the I R S instead of your family

IRS IRC 404C 401paragraph(K) §

The Story of Jack & Jill

Jack No 401(k) Net Take Home Pay $1286 NET NET Spendable Income $1186 Monthly Wages $2000 FICA (Social Security) $ 154 Fed/State Taxes @ 28% $ 560 Net Take Home Pay $1286 Monthly Savings/Investments $ 100 NET NET Spendable Income $1186 Total Monthly Savings/Investments $ 100

* Jill * With a 401(k) Net Taxable Pay $1900 Monthly Wages $2000 Savings/Investments $ 100 Net Taxable Pay $1900 FICA (Social Security) $ 154 Fed/State @28% $ 521 *Income Taxes on $1900 not $2000 NET NET Spendable Income $1186 Savings/Investments (difference of savings $39 ($560 -$521= $39) + $25 Company Match 25% of contribution $74 Total Monthly Investment of $ 174

Is it worth it? Jack Jill Net Take Home Pay $1286 Monthly Wages $2000 Monthly Wages $2000 FICA (Social Security) $ 154 Savings/Investments $ 139 Federal & State TAX $ 560 Net Taxable Pay $1861 Net Take Home Pay $1286 FICA (Social Security) $ 154 Federal & State Income TAX $ 521 *Income Taxes on $1900 not $2000 Monthly Investments $ 100 NET NET Spendable Income $1186 NET NET Spendable Income $1186 Savings/Investments $ 139 Company Match @ 25% $ 25 Total Monthly Investment of $ 174 Total Monthly Investments $ 100

Jack No 401(k) Jill With a 401(k) 5 YEARS 10 YEARS 20 YEARS 35 YEARS $8,001 $20,034 $49,922 $145,931 $14,022 $36,605 $131,549 $417,888 Results of investing after-taxes in a taxed environment Results of investing before-taxes in a tax-defered environment INCOME GENERATED @ 10% MINUS 28% TAXES $11,383 $30,087

$417,888 - $145,931 = $271,957 Your true TAX bite: AKA “what our Uncle Sam forgets to tell us” $100 invested every month for 35 years, taxed @ 28% annually on the growth: (Jack ) $145,931 $100 invested every month for 35 years, Pre-tax & tax-defered annually on the growth: (Jill) $417,888 $417,888 - $145,931 = $271,957

What is the $ COST $ of Waiting?

WHATS THE NEXT STEP? 401(K) BUCKET