More take home pay

When $1,000 doesn’t cost $1,000, but means more take-home pay

Taking $1,000 out of your salary can sound like a big bite. If you participate in a tax-deferred savings plan, the difference you see in your paycheck will actually be much less.

Gayle earns $30,000 year. She would like to save $1,000 a year in her tax-deferred retirement plan, but she isn’t sure she can afford it. Taking the effects of tax deferral into account, however, she discovers it will actually mean much less than $1,000 difference in her take-home pay.

With the benefits of tax deferral, Gayle’s $1,000 annual contribution will make a difference in her take-home pay of only $750. If she participates in an employer plan that automatically deducts the savings from her paycheck, it means a difference of only $14.42 a week instead of the $19.23 Gayle originally calculated without taking into account the tax consequences.

If Gayle purchases a tax-deferred Individual Retirement Account (IRA), she will receive an extra $250 on her tax refund the following year.