Page 32 - The EDGE Winter 2024 WEB

RETIREMENT PLANNING

BY FRED MAKONNEN, HEAD OF GROUP RETIREMENT DISTRIBUTION OF EQUITABLE
Getting an Early Start

Fred Makonnen

While your retirement may feel – and be – decades away, getting a head start on planning for it early in your career
can help you save more for the future, reduce your current taxes, and place you on a path toward financial security
as you move forward in your career – and your life.

A 403(B) PLAN CAN BE A SMART INVESTMENT FOR YOUR FUTURE
When it comes to saving for the future, the sooner you start, the better. By starting early in your career and
contributing as much as possible to employer-sponsored retirement plans, such as a 403(b), you could potentially
accumulate more money. By investing early in a tax-deferred account, your money works harder and longer for
you, and you may end up with more money in your pocket.

THE MORE YOU CONTRIBUTE TO YOUR 403(B) PLAN NOW, THE LESS YOU PAY IN TAXES
Did you know your 403(b) contributions are tax deferred? The contributions you make to your 403(b) plan go
directly into your account prior to being taxed, reducing the income tax you owe for that year based on your
marginal tax rate.

Here’s an example that helps illustrate this: 1

Let's say your annual pretax income is $50,000

If you contribute this much to your 403(b) pretax: $2,500 $5,000 $7,500
(5%) (10%) (15%)

Your taxable income will be: $47,500 $45,000 $42,500
And you will pay the following income taxes: $5,315 $5,015 $4,715

Here are a few additional benefits to contributing to a 403(b) plan:
1. Pay taxes later – The earnings and gains on amounts in your 403(b) account aren’t taxed until you withdraw them.
2. You may qualify for an annual IRS tax credit – Depending on your individual circumstances, the Saver’s
Credit may help reduce your overall annual income.
3. More growth, less taxes – The more you contribute to your 403(b) plan, the more your savings can grow and
reduce the amount of taxes you pay.

WHEN IT COMES TO PLANNING, A LITTLE MORE NOW MAY MEAN A LOT MORE LATER
By adding a 403(b) plan, even if you’re only investing a relatively small amount, you’re building toward larger
goals over time thanks to the power of compounding. When it comes to saving for the future, the longer you’re
invested, the more you can potentially benefit from compounding.

Compounding occurs when the earnings from your investments are reinvested so they can potentially produce
even more earnings. It's like a snowball effect; each year's gains can build on those of the previous years to
potentially increase the overall growth of your investment.

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32 THE EDGE WINTER 2024