Page 226 - digitalliteracy

Summary & Resources

4. Will and Gabriela met in college and were married the summer after their gradu-
ation. They both work for different employers and have access to matching funds
through their employers’ 401(k) plans. Will’s employer offers matching up to 4%,
and Gabriela’s offers matching up to 7%. They are reluctant to put so much aside,
because they have other things they want to spend their money on. What might you
say to Will and Gabriela about the importance of matching funds? Why is it impor-
tant to start saving early for retirement?

Key Terms

budget What you plan to spend in each of Internal Revenue Service (IRS) A federal
your spending categories. You can create a organization that carries out the respon-
budget on the back of an envelope or in an sibilities of the secretary of the treasury
Excel spreadsheet. under Section 7801 of the Internal Revenue
Code. The secretary has full authority to
emergency savings account A bank administer and enforce the internal revenue
account intended to cover at least 6 months’ laws and has the power to create an agency
worth of your expenses in case of unemploy- to enforce these laws. The IRS was created
ment, medical leave, or other emergency. based on this legislative grant.

401(k) savings program A defined contri- Old-Age, Survivors, and Disability Insur-
bution plan offered by corporate employers ance The part of the Social Security Act of
in which the employee makes before-tax 1935 that established a system of retirement
contributions for retirement purposes. The benefits for workers.
employer may offer to match your contri-
butions up to a certain percentage of your Roth IRA An individual retirement account
gross income. that allows an eligible person to make con-
tributions in after-tax dollars. These dollars
403(b) savings program A defined contri- are not taxed by the IRS when they are with-
bution plan offered by the nonprofit employ- drawn at the appropriate retirement age.
ers in which the employee makes before-tax
contributions for retirement purposes. The SMART goals Financial goals that are spe-
employer may offer to match your contri- cific, measurable, action oriented, realistic,
butions up to a certain percentage of your and time based.
gross income.
traditional IRA A retirement account an
income and expenditure statement A investor can use if he or she meets certain
report that shows a family’s income and specifications; individuals can deduct from
expenditures over a period of time such as a their taxable income the amount (up to a
month or a year. limit) contributed to a traditional IRA.

Individual Retirement Accounts
(IRAs) Individual retirement accounts
that encourage workers to set aside greater
amounts for retirement.

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