| Every year people retire without enough funds in their retirement plans. The problem, most often, is not that they didn't make enough money during their careers, but rather that they did not save enough. Tax-favored savings vehicles, such as employer-based retirement plans, are the preferred means for wealth accumulation in preparation for retirement.
The following graph is an illustration of the difference in an account balance over time between saving $44,000 pre-tax in a qualified plan versus paying the tax on $44,000 and saving the difference.
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| Accumulation |
Distribution |
Assumptions:
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8% Interest |
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Pre- tax contribution is $44,000 annually |
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After-tax contribution is $44,000 less 40% to taxes |
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Assumptions:
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Annual payout of $118,317 |
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Marginal tax rate on plan withdrawals is 40% |
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Marginal tax rate on investment income is 33% |
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