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Let’s examine what affect a retirement plan would have on Tina’s current income.
Tina’s new employer has offered her the option of investing in an employer-sponsored, tax-deferred retirement savings plan. The tax code allows her to invest a portion of her monthly earnings in a retirement savings plan based on gross income. This means:
She has made the following comparison to determine the effect on her monthly take-home pay if she invests in the retirement savings account with a 33 percent employer match and compared this with her take-home pay if she invests in a regular after-tax savings account. In both cases, Tina will set aside $250 each month for her savings. She is filing as a single person with a total annual income of $30,000 with no other income and with standard deductions. To determine the impact on her savings and take-home pay, she created this table.
Tina's take-home pay and savings:
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