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I work for a small company, so we have like no resources for helping us understanding benefits. My employer is willing to automatically give me 5% of my annual salary if I set up an IRA account. So that's what's motivating me here. I'm all about free money. So...

So i'm young, 26 to be exact. And want to setup an IRA and deffer as much as possible to offset paying higher taxes. But how should I make this calculation? At what point does deferring taxes for an IRA become beneficial? And what limits exists for tax deferment?

Lets say I'm making 100K annually. (Which i'm not, but it's a nice even number). How much should i defer? And do I just give a Scottrade IRA account number to my employer and say, put a specified percent of my paycheck here?

Thanks for the help in advance. Its time to start investing in my life.

--edit 1-- Here is our company policy: For retirement planning, an amount equal to 10% of your gross income will be deposited, at least annually, into combination of a 401(k) account and {company name} Employee Stock Ownership Plan (ESOP.) Once you have completed four months of service, the 401(k) tax-deferred funds are immediately vested. There are longer vesting requirements on the ESOP deposits. We will provide you with a copies of the summary plan documents detailing the structure of the 401(k) and the ESOP. You may be eligible to defer additional income into the 401(k) plan through payroll deductions. The additional deferrals are income tax deferred and limited by IRS regulations. The amount of additional deferment allowed is typically $14,000 to $18,000 annually.

  • Can you give more details about the arrangement your employer is offering? I don't think the employer can make tax-free contributions for you to a personal IRA; the employer would have to set up something like a SIMPLE IRA or other such plan. Is that what they are going to do? – BrenBarn Feb 24 '15 at 19:43
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    IRAs have a yearly limit as well. – JonH Feb 24 '15 at 20:49
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    Your update states they are offering a 401(k), not an IRA. I'd not take any of the company stick to be honest. – Andy Feb 24 '15 at 22:10
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    The I in IRA stands for Individual. Your employer cannot open an IRA on your behalf, nor can the employer contribute to your IRA: you must make the contribution. Your edits indicate that you are talking about a 401k plan, not an IRA at all. You can contribute to your own separate IRA but the existence of a 401k plan (even if you decline to participate in it) affects how much of a Traditional IRA contribution you can deduct and whether you are entitled to contribute to a Roth IRA at all. Ditto your marital status and whether you elect to file as MFJ or MFS. – Dilip Sarwate Feb 25 '15 at 4:28
  • As @DilipSarwate stated, they are offering you a 401(k) plan, not IRA. – Kristy Welsh Feb 25 '15 at 15:23

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