Pretty soon many Americans will be getting a gift from Uncle Sam in the form of tax rebate, which is part of the Economic Stimulus package passed by Congress and the President. While the government may hope you and your participants spend that money on a flat-screen t.v. or a vacation, it may be smarter to put it into a 401(k) plan.
The amount of the rebate check will vary based on a person’s Adjusted Gross Income (AGI) and whether that person is single or files jointly and whether they have children. According to an article on Kiplingers.com, a couple that receives a rebate of $1,200 can actually afford to make a $1,600 contribution to their retirement account. If the couple is in the 25% tax bracket, investing $1,600 only lowers their tax-home pay by $1,200. After 30 years, that $1,600 could boost their account by $16,000 if their investment earns an annual return of 8%. With a 50% company matching contribution, that amount could grow to $24,000 in 30 years.
That $1,200 could also contributed to a Roth 401(k) or Roth IRA. Although the contribution is not tax-deferrable, the earnings can be withdrawn tax-free at age 59 ½, and when the person’s had the Roth for at least five years.
NADART is pleased to offer a wide range of investment options to put that tax rebate to good use, including our Roth 401(k). If you’re interested in learning more about our retirement plans, please contact a NADART representative at (800) 462-3278, ext. 7161 or e-mail nadart401k@nada.org.