Question

Is pretax benefits good to save money for my retirement,

Answer 1

The short answer is definitely yes, I will explain how:

First of all, A pre-tax deduction that amount which is kept aside from the gross pay before any taxes are withheld from the paycheck, for example Out of $40,000 gross, your pre-tax amount is say $2,000. Then You will be taxed on $38,000. ($40,000-$2,000).

$2,000 will go as deduction for pre-tax benefits,

Hence you are paying less taxes in current year.

Less taxes means saving, you could earn interest from that sum which you would otherwise paid to the government as tax.

A pre-tax retirement contribution is money that you put in a tax-advantaged retirement savings account like Traditional IRA or 401(K), which is exempt from taxes until it is not withdrawn before or after retirement. So basically you are deferring your tax liability to the maximum possible time and simultaneously becoming independent after your retirement.

For example let’s say you are 25 years old and contributed a constant sum of money $5,000 each year till retirement, assuming retirement age is 60 years for simplicity.

Amount deposited in pre-tax account is $5,000 x (60-25) = $1,75,000

This much amount you will have on your retirement out of your money plus your employer will also contribute some amount to your pre-tax account like you did as this is a statutory requirement for the employer to do so.

In the end you will have more money in your account than you actually contributed which will make you financially capable to maintain a good lifestyle even after retirement.