Employee Solutions

A 401(k) is an account sponsored by your employer that enables you to save money and watch your savings grow. To build a successful retirement fund, you will need to make sure you are contributing the right amount and that contributions will be invested the right way based on your needs. Consider making Pre-Tax or Roth contributions.

Roth Vs. Traditional Calculator

Pre-Tax 401(k)

Advantages of Pre-Tax

  • Reduces your taxable income
  • Pay no taxes until you take a distribution
  • Tax savings equals more take-home pay

Pre-Tax could be beneficial if you

  • Are in a high tax bracket and need to lower your taxable income (see example below)
  • Are unable to tolerate less take-home pay now
  • Retire or need access to your account in five years or less
  • Are in a higher tax bracket now than you will be at retirement

Things to consider about Pre-Tax

  • Required minimum 20 percent federal tax and possible state tax due immediately upon withdrawal
  • Uncertainty about the assessment of future taxes
  • At age 70½ you may be required to begin taking minimum distributions
  • Non spousal beneficiaries subject to specific rules for distribution

A tax savings example:

tax-savings

Please consult your American Trust representative or your tax advisor for more information as each individual situation may vary.

Roth 401(k)

Advantages of Roth

  • Tax-free growth
  • Great for disposable income or emergencies at retirement
  • No required minimum distribution provision at age 70½
  • Passes tax-free to your beneficiaries
  • Higher contribution limits than a Roth IRA
  • May be rolled into a Roth IRA
  • Your contributions and earnings are tax-free once you reach age 59½ and have been investing for five years

Roth could be beneficial if you

  • Are in a lower tax bracket now than at retirement (likelihood of this increases if you have 20 years or more until retirement)
  • Can afford less take-home pay now in exchange for paying no taxes later
  • Want to leave tax-free money to your beneficiaries
  • Have a pre-tax source of funds to use for income, but also need disposable, tax-free income at retirement
  • Are age 30 or less and/or just starting to save for retirement
  • Can wait for five years and age 59½ to use the money

Things to consider about Roth

  • Contributions do not lower your income taxes
  • Less take-home pay (due to taxes)
  • Cannot be distributed for loans or hardships
  • Five year and age 59½ rules apply to everyone

Please consult your American Trust representative or your tax advisor for more information as each individual situation may vary.