A lesser-known way to save money regarding 401(k) plans takes the form of after-tax contributions, and there are three good reasons why one should consider them. The first reason is that such a fund can be used as a source of funds for unforeseeable circumstances and emergencies. The second reason is if one’s income is considered high and the person has already paid the maximum pretax contribution amount. The third reason is if one’s income is not particularly steady or is subject to drastic or otherwise negative changes.
Key Takeaways:
- Seven out of ten midsize businesses now offer their employees a 401(k) program to contribute to.
- If you pretax contributions, then your tax bill can actually be lowered the same year.
- Since 40% of families do not have the required funds to deal with unexpected emergencies, having the proper funds is essential.
“When given a choice, the majority of American workers opt for pretax contributions, which lower their federal income tax bill in the year they’re made.”
