Employer Sponsored Retirement Plans

by | Apr 11, 2023

Retirement planning is an essential component of your financial plan. While it may sound complicated, saving to your employer-sponsored retirement plan can be an easy way to start. These plans may offer access to potential tax savings and other employer benefits – all while creating the foundation for a secure financial future. There are a few general strategies for building wealth through your employer-sponsored retirement plan.

Where do I start?

Employer-sponsored retirement plans offer eligible workers a straightforward way to save for retirement. Generally, plan contributions are made through automatic enrollment contributions deducted directly from the employee’s paycheck. This strategy allows for disciplined and regular savings to the plan to help to make cash flow more predictable.

Take advantage of your employer-sponsored retirement plan by contributing at least enough to get the full matching contribution from your employer. Receiving the matching contribution is like netting yourself an unconditional pay raise. Otherwise, you leave those matching dollars on the table and out of your nest egg.

Setting aside a small percentage of what you make now can lay the foundation for a secure financial future. A savings amount of at least 10% is a good place to start, though those nearing retirement may need to adjust accordingly. 

If your cash flow allows, consider increasing your contributions to make use of having your savings in the  tax-advantaged retirement account.

Contribution and Tax Benefits

Utilize retirement savings accounts from your employer for the potential tax advantages. Pre-tax contributions may allow taxpayers to take a deduction on their taxes in the year of contribution. High earners can use this strategy to help reduce their income tax burden and improve tax efficiency. Moreover, some plans may offer after-tax Roth contributions, which has the advantage that accrued earnings will be tax-free for qualified distributions in retirement. This can be beneficial for those who believe they will earn more in retirement due to changing employment circumstances or other life events. Splitting savings between pre-tax and Roth offers investors the benefit of diversifying their retirement investments for both current and future tax years.