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401K Alabama

While a 401(k) plan isn't a magic guarantee that if you participate you will be able to retire in Tahiti at age 55, it can be a major part, perhaps even the most important part, of your retirement planning strategy. For many people in Alabama, especially those who do not own homes, their 401(k)'s can be their biggest assets.
1. Local Companies
2. The Tax Reform Act
3. Your 401(k) Plan is Tax-Deferred
4. Your 401(k) Plan Can Protect You
5. Featured Local Company

1. Local Companies

Grinkmeyer and Leonard Wealth Management
(205) 970-9088
1950 Stonegate Drive
Birmingham, AL
Knowles Tracy CPA
(334) 793-3122
110 Medical Dr
Dothan, AL
Jackson Accounting & Income Tax Service
(205) 459-2896
1204 S Mulberry Ave
Butler, AL
Northington & Associates Inc
(334) 361-2000
205 Highway 82 Byp W
Prattville, AL
Alabama Payroll Services Inc
(205) 879-9055
1776 Independence Ct
Birmingham, AL
Accounting & Business Services
(256) 423-8768
26756 Main St
Ardmore, AL
Burns & Burns PC
(251) 575-3630
865 S Alabama Ave
Monroeville, AL
Davis Robert R CPA
(251) 368-3801
1996 Medical Park Dr
Atmore, AL
Adkison Todd CPA
(334) 684-3500
Geneva, AL
Smith Mark A CPA
(256) 832-2798
1707A Hillyer Robinson Ind
Anniston, AL


2. The Tax Reform Act

401 plans were first authorized by a section of The Tax Reform Act that Congress passed in 1978. It took several more years until the actual regulations were put into place. So beginning in 1982, taxpayers were able to begin making contributions to their plans for the first time. It wasn’t until 1991, however, that the final regulations were published.

The name of the program comes from the place where it is listed in the Internal Revenue Service tax code: section 401, paragraph (k).

Not every employee in Alabama is eligible; those who work for tax-exempt organization, such as churches, public schools, or hospitals cannot participate. But for these employers, there are similar 403(b) plans available.

But the basic idea of each plan is the same: your employer deducts a certain percentage of your gross earnings from each paycheck and puts it into a retirement plan for you. Its all done automatically, with the amount deducted reported to you on each paycheck stub.

3. Your 401(k) Plan is Tax-Deferred

Your automatic deductions are done on a pre-tax basis. This doesn’t mean that they are “tax free,” it just means that you don’t pay taxes on these amounts until, ideally, you are at least 59 and ½ years old, you retire, and you start to receive distributions from your plan. (There are certain instances in which you can receive distributions from your plan before you are 59 and ½ years old, but you generally want to do this unless you have to.)

The tax-deferred contributions are invested in securities or stocks and are then allowed to grow until they are withdrawn when the participant retires. Unlike regular stock market investments, you are not faced with paying capital gains taxes when your 401k investments increase in value.

What does this mean right now, when you are making contributions to your plan? It means that your employer is reporting a lower adjusted gross income to your employer. Although you’re still making the same amount of money, according to the IRS, you’re making a smaller amount of taxable income and your tax liability is lowered. This reduces the amount of taxes you must pay at the end of the year.

For example, suppose that you receive a paycheck for $1,000. If you put $50 of that amount into a 401 k plan, your taxable income is only $950.

This is often considered one of the major benefits of a 401(k) plan. If you contribute enough to the plan, you might even put yourself into a lower tax bracket. In addition, because certain IRS credits, such as child tax credits, depend on a worker’s adjusted gross income, you may even lower your taxable income enough to be eligible for additional credits, while saving for retirement at the same time.

Because you lower your adjusted gross income when you contribute to a 401(k) plan, you also lower the amount of state taxes you must pay (if your state has a state income tax).

Of course you have to pay taxes on this income when you retire. But since incomes often drop when people retire, you may be in a lower income bracket by then and pay less in taxes.

4. Your 401(k) Plan Can Protect You

With pension plans from employers now a rarity, the 401k-retirement savings plan may well be the main source of retirement income for many people in Alabama. Utilize your human resources department to make sure you know what is available to you for retirement options, and that you understand your available benefits. Don’t wait for them to come to you, because they probably won’t.

Few middle- and low-income people are able to buy significant amounts of stocks and bonds on their own; most don’t have a broker. Few will have Certificates of Deposits or large amounts of savings. Few in this category are able to put money into 402 plans, or even understand how to utilize them.

Of course, there are always Social Security payments. But if you rely exclusively on that, you’re very likely to be disappointed. Social Security payments can be as low as several hundred per month. And unless the government radically changes the rules in the future, you’re not likely to receive more than a few thousand dollars a month from Social Security payments, regardless of how much you earned during your lifetime.

If you have to live on Social Security alone, that could represent a radical drop from your pre-retirement income. You don’t want to go from a middle-class lifestyle to poverty. Many of us dream that we’ll be better off after we retire; few of us realize that without careful planning things could be worse.

5. Featured Local Company

Grinkmeyer and Leonard Wealth Management

(205) 970-9088
1950 Stonegate Drive
Birmingham, AL
www.gandlwealth.com

Read more about 401K

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- 401K Gardendale AL
- 401K Grand Bay AL
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- 401K Hamilton AL
- 401K Hanceville AL
- 401K Hartselle AL
- 401K Harvest AL
- 401K Hazel Green AL
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- 401K Irvington AL
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- 401K Lanett AL
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- 401K Millbrook AL
- 401K Mobile AL
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- 401K Montevallo AL
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- 401K Muscle Shoals AL
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- 401K Opelika AL
- 401K Oxford AL
- 401K Ozark AL
- 401K Pelham AL
- 401K Pell City AL
- 401K Phenix City AL
- 401K Piedmont AL
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