Employer's contributions to a retirement plan are tax deferred until they are distributed to you. The money you contribute to the 1081.01 (d)/401K plan is tax-exempt, until you withdraw the money from the plan. This constitutes a significant tax saving.
For example, if your annual compensation is $12,000 and you contribute $100 per month to the plan, or $1,200 per year, you will save the taxes that would otherwise be due on that $1,200. If your effective tax rate is 12%, you will obtain a savings equal to that rate, or $144 ($1,200 x 12%) in taxes.
At the end of the year, when you receive your W-2 form from your employer, the amount you contributed to the plan during the tax year will be deducted from the amount you will report as taxable income for the year. In other words, you will only pay taxes on $10,800 of your $12,000 in compensation. That's why it is advantageous to contribute as much as possible to the plan, within the limits established by law, to maximize your tax savings.
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FDIC Member. Products and services offered by Banco Popular de Puerto Rico.
1Withdrawals are subject to the availability of funds in your account.
2Deposits are subject to the provisions of the Bank’s Funds Availability Policy. Easy Deposit Mobile is a free service and only for Banco Popular customers with individual deposit accounts and/or commercial accounts (FlexiCuenta de Negocios® & B-Smart®). Customers selected in accordance with the Bank’s eligibility criteria. Checks deposited before 6:00 p.m. of a business day will be processed the same business day, subject to verification and deposit validation. In the back of the check to be deposited, enter your signature, account number and the phrase “For Deposit Only at BPPR.”