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Forbes: 8 Opportunities in Your Paycheck You May Be Missing

Retirement Plans

Employer Match: If you’re fortunate enough to have an employer that matches part of your contributions, you’ll want to try to contribute at least enough to max the match. Otherwise you’re leaving free money on the table.

Tax Deferral: Pre-tax contributions allow you to defer the taxes until you withdraw the money from your plan. This has a couple of advantages. First of all, lowering your taxable income could make you eligible for additional credits and deductions. Second, you might be in a lower tax bracket in retirement if you’ll need less income than you make now. But even if you’re in the same tax bracket, you could still end up paying an overall lower rate in retirement since some of your income will be taxed at lower brackets. Finally, even if you pay the same tax rate, you’ll have the additional earnings on the money that would have gone to taxes each year.

Tax Free Growth: Some plans also allow Roth contributions, which can grow tax-free after 5 years and age 59 1/2. These can be particularly beneficial if you max out your contributions or expect to be paying a higher tax rate in retirement.

Retirement Income: For the reasons above, this is usually the biggest voluntary deduction for most people but it’s still not big enough. According to our latest research, 92% of American employees are contributing to their employer’s retirement plan but only 18% know they are on track for retirement. So how much is enough? The National Graduate Institute for Policy Studies calculated that if you work for 30 years, invest in a 60/40 split between stocks and bonds, and then retire for 30 years on Social Security and a 4% initial withdrawal from your portfolio adjusted annually for inflation, you’d have to save 12-15% of your income each year to retire with an income of half of your final year’s income. Of course, your situation may be different so you’re better off running your own numbers.

Automatic Contribution Rate Escalator: If you need to save more but can’t afford to dramatically increase your contribution rate, see if your employer offers this feature, which allows you to automatically and slowly increase your contributions until you’ve hit your target rate. For example, if you’re putting in 6% to your 401(k), you can have that go up 1% per year until it reaches 15%. In his book The Automatic Millionaire, David Bach shares real stories of how ordinary people built up extraordinary wealth by slowly increasing their saving like this over time.

Investment Options and Advice: Your retirement plan may offer unique investment options like stable value funds and low cost institutional shares as well as investment education or advice services at no additional cost to you.

Pitfalls to Avoid: Since there are restrictions and possible penalties on withdrawing your money early, it’s a good idea to have some savings outside your retirement plan to cover emergencies and other short-term savings.

(iStock)

More from Forbes:
10 Common Money Management Mistakes That You’re Probably Making
How To Teach Kids About Money: 10 Dos And Don’ts
10 Common Myths That Could Be Hurting Your Retirement Planning



The opinions expressed are solely those of the author and do not necessarily reflect the views of Comcast.

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