What are Section 403 (b) and Section 457 retirement plans and why are they beneficial?
These plans are great ways to save money for retirement. Each payday, the employee makes a contribution to one of these plans. This contribution is taken out of wages before income taxes are withheld. This reduces the amount of earnings subject to income tax, lowering total taxes. (Social Security and Medicare taxes are withheld from the contributions). Upon retiring, an employee will receive contributions back in the form of regular payments from a retirement plan. These payments are subject to income tax withholding at that time. Income taxes on contributions to the plan are deferred, or put off until they receive the money after retirement. The good news…they will probably pay income taxes at a lower rate than they would have while they were working. This means that they will pay less income tax on this money than they would have without the retirement plan.
