Saving for retirement in your typical employer retirement plan is easier than saving for many other financial goals because you get an immediate tax deduction for saving. What does this mean? Since the total amount of money reported to Uncle Sam does not include money you’ve socked away in your retirement account, it means less of a hit on your paycheck than saving money in, say, your checking account.
Use this calculator to estimate how much less you might pay in federal taxes each year through your employer retirement plan. It assumes you are in the 25% federal tax bracket (depending on your state, you may lower state taxes as well). So your tax savings may be higher or lower depending on your specific tax bracket.
Not only does the initial tax benefit help you save more, you aren’t taxed on contributions or earnings until you withdraw. This can really add up (see our "compounding interest" calculator) over time.