McMillion Financial Group
your partner in retirement planning
your partner in retirement planning
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The Power of Pre-Tax Contributions
Emily and Kent both earn $2000 per month, and both save $200 each month towards their
retirement. However, Emily has the opportunity to invest in a 403(b) plan while Kent's retirement
contributions are made to an after-tax savings program.
Paycheck Analysis
KENT EMILY
month. In our hypothetical example, approximately $500 would go to the federal government,
$100 would be withheld for state taxes and FICA would be about another $153. As Kent is saving
$200 a month for retirement, he would be left with $1,047 in spendable income.
Since Emily contributes $200 to a 403(b) retirement savings plan, her taxable income is only
$1800. As such, her taxes will be less than Kent's with about $450 going to the federal
government, $90 withheld for the state and FICA remaining at $153. Since Emily has reduced her
taxable income by contributing to her 403(b), her spendable income is $1,107.
As you can see, even though Emily and Kent are each saving the same amount for retirement,
Emily is able to take home $60 more dollars per pay period because she is investing on a pre-tax
basis in her 403(b) account.
Emily and Kent both earn $2000 per month, and both save $200 each month towards their
retirement. However, Emily has the opportunity to invest in a 403(b) plan while Kent's retirement
contributions are made to an after-tax savings program.
Paycheck Analysis
KENT EMILY
- After-Tax 403(b)
Gross Earnings $2000 $2000
Retirement Savings 200 200
Taxable Income 2000 1800
Federal Withholding 500 450
State Withholding 100 90
FICA 153 153
Net take home after savings 1047 1107
Assumes a 5% state and 25% federal tax rate.
month. In our hypothetical example, approximately $500 would go to the federal government,
$100 would be withheld for state taxes and FICA would be about another $153. As Kent is saving
$200 a month for retirement, he would be left with $1,047 in spendable income.
Since Emily contributes $200 to a 403(b) retirement savings plan, her taxable income is only
$1800. As such, her taxes will be less than Kent's with about $450 going to the federal
government, $90 withheld for the state and FICA remaining at $153. Since Emily has reduced her
taxable income by contributing to her 403(b), her spendable income is $1,107.
As you can see, even though Emily and Kent are each saving the same amount for retirement,
Emily is able to take home $60 more dollars per pay period because she is investing on a pre-tax
basis in her 403(b) account.
Fortune Financial Services Corporation does not give tax or legal advice. Please consult your tax or legal
professional
Securities offered through Fortune Financial Services Corporation member FINRA and SIPC
______________________________________________________________________________
Copyright 2006 McMillion Financial Group LLC. All rights reserved. Revised July 12, 2019.
______________________________________________________________________________
professional
Securities offered through Fortune Financial Services Corporation member FINRA and SIPC
______________________________________________________________________________
Copyright 2006 McMillion Financial Group LLC. All rights reserved. Revised July 12, 2019.
______________________________________________________________________________
Branch Office: 111 2nd Ave NE, Suite 913B, St. Petersburg FL 33701
Phone: (727) 456-1518 E-mail: kmcmillion@mcmillionfinancialgroup.com
McMillion Financial Group LLC is not an affiliate of Fortune Financial Services
Inc.
Phone: (727) 456-1518 E-mail: kmcmillion@mcmillionfinancialgroup.com
McMillion Financial Group LLC is not an affiliate of Fortune Financial Services
Inc.
