BOSTON--(BUSINESS WIRE)-- As millions of Americans are
finally relaxing from the stress of doing their taxes, one out of four
workers may be missing out on the best tax benefit available to
them year-round: their employer-sponsored retirement plan such
as a 401(k), 403(b) or 457.
These plans are particularly helpful at tax time because
contributions throughout the year are made with pre-tax dollars,
which reduce your current taxable income on a dollar-for-dollar
basis. Despite this tax advantage, Fidelity Investments®
reports that 25 percent of corporate American workers it
surveyed in 1999, who were eligible to participate in a 401(k),
still don't. And contrary to other reports, the reason for not
investing in a plan isn't always because a worker doesn't earn
enough.
Retirement Plans Reduce Your Current Tax Bill
According to Fidelity's report, "Building Futures: How
American Companies Are Helping Their Employees Retire," the
average household income of workers not participating in 401(k)
plans is $62,000 and their average age is 38. If these workers
contributed at the average rate of seven percent, their taxable
income would be reduced by $4,340. Based on a 28 percent tax
bracket, the person's tax bill could be reduced by $1,215.
Potential to Accumulate Half Million Dollars
Non-participants aren't only missing out on tax advantages,
but they also are passing up one of the best ways to save for
retirement. People in their late thirties, who may have about 25
years until retirement, can still accumulate a significant
amount. For example, annual contributions of seven percent of salary
made through monthly pre-tax payroll deductions over 25 years
could grow to more than a half million dollars.(1) This amount
can be increased significantly if workers receive a company
match on their contributions.
Contribution Limits Increase to $10,500
Additionally, Fidelity said American workers already
participating in an employer-sponsored plan can enhance their
tax-reduction benefits by increasing the amount they are
contributing through payroll deductions. The IRS has increased
the maximum amount a worker can contribute to their defined
contribution plan on a pre-tax basis to $10,500 in 2000, from
$10,000 in 1999.
For more complete information about Fidelity mutual funds,
including fees and expenses, call or write Fidelity for free
prospectuses. Read them carefully before you make your
investment.
- This hypothetical example is based on $62,000 salary with
annual increases of 3 percent, and an annual compounded
return on investments of 9.7 percent from age 38 to age 50,
and 9.1 percent from age 51 to 63. Your own plan may earn
more or less than this example and income taxes will be due
when you withdraw from your account.
Fidelity Institutional Retirement Services Company is a
division of Fidelity Investments Institutional Services Company,
Inc., 82 Devonshire Street, Boston, MA 02109.
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