A 401(k) plan is a tax qualified deferred compensation plan which enables you to save money, lower taxes, and invest in your financial future. Under a 401(k) plan, your elective contributions are made on a before tax basis; that is, the amount deferred will be excluded from your taxable income. This may currently lower your taxes. The following are some advantages of 401(k) plans.

  • Elective deferrals are voluntary and the amount you contribute is up to you. Federal law limits the deferral to

$13,000 in 2004
$14,000 in 2005
$15,000 in 2006

  • “Catch-up” contributions beginning in the year you reach age 50 of

$3,000 in 2004
$4,000 in 2005
$5,000 in 2006

  • Deferrals are made before tax; therefore, you pay less in Federal and State income taxes
  • Earnings and income are not taxed until the money is distributed from the plan. When you receive your retirement benefit you may be in a lower tax bracket than you are currently.