Alcoa: Retirement and Investing: Savings Plan: Plan Basics: Advantages of Pre-Tax Contributions

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Retirement and Investing


		Savings Plan

Savings Plan Overview

Plan Basics

	Advantages of Pre-Tax Contributions

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	Automatic Increase

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The Advantages of Pre-Tax Contributions

The Advantage of Pre-Tax Contributions

As an example*, Ellen's pre-tax contribution goes directly into her Alcoa Savings Plan account, before federal taxes are taken out. So she does not pay taxes on the amount she has saved. While saving either 3 percent or 6 percent would give her a tax advantage, Ellen wants to compare her options:

*This example is based on 2006 tax schedules and is for illustration purposes only. Social Security, state, and local taxes are not considered. Your actual tax savings could be even greater because in most states you also can defer state income taxes. The amount of tax you actually pay will depend on current tax rates and your own financial situation.

When Ellen contributes 6 percent, she saves twice as much for her retirement and pays $135 less in taxes. Plus, while she is contributing an extra $900 to her Savings Plan, her net pay is reduced by only $765. And of course, Ellen knows it's smart to save 6 percent to take full advantage of the company matching contribution.