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Originally Posted by =X=
Wow! A 40% ROI is awesome people not taking advantage of this are insane. Unless they can generate more elsewhere.
Question do you pay tax when you withdraw. Do you also control what you pull out or is the payout controlled by the government
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I found this online:
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A major incentive for people to save through pension plans, rather than other types of savings plans, is the tax relief they receive. This means that if someone is a taxpayer and they make payments into a pension scheme, the government repays the amount of tax originally deducted from the amount being saved. This repayment also goes into the pension scheme.
So if a person in the UK is on a salary of, say, £30,000 a year, they will be paying tax at 20%. If they make a monthly payment into their pension scheme of £80, the government will refund £20 in tax, bringing the total being saved to £100. That's because when the person was paid £100 by their employer, 20% or £20 was originally deducted in tax.
If a person is a higher-rate taxpayer, paying tax at 40%, they would have £53.33 refunded.
While pension contributions tax relief is a major incentive to save for a pension, the income from a pension is taxable. So at some point in the future, tax will be paid on at least some of the income generated by the savings.
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Although Harry says they will pay more in than you had withheld... I guess I don't understand that math. But, he is the guy that lives here.
In the US you would usually contribute pre-tax $'s. So, the result is basically the same. If you earn $30k and you deposit 10% or $3,000... you will not have any tax withheld on that $3,000 that you deferred.
Of course, in the US we also have the Roth IRA, which is a bit different. In a Roth IRA you put after tax $'s into a fund. However, with the Roth 100% of the payouts are tax free... so if you get a really good return it may be a better tax savings than investing pre-tax $'s which you then have to pay tax on when you withdraw them.
I think the most important information in this book are:
1. Pay yourself first, 10%. So, it is pretty easy if you have access to a 401k... just elect 10%.
2. Don't buy stuff you can't afford. All debt is bad. The sorter the term the worst. The less secured the worst. Which means, while a mortgage is probably acceptable buying a TV with your credit card, not such a good idea.
BOb