401 K plan is a retirement plan that is on offer in US and some other countries. This plan offers tax deferred savings to the employees and encourages them to save for retirement. It is also referred to as employer sponsored retirement plan.

A 401 K plan offers several tax deduction benefits to the employees. These benefits can be availed by all citizens (except in certain cases where the employer can impose certain restrictions). In cases of people with less than 1 year of service, non US citizens or part time workers, contributions to a 401 K plan depends upon the employer. For others the rules are common.

401 K plan offers tax deductions to the contributors. Under this plan all the contributions are tax deductible, that is, tax is not levied on the contributions. Even though contributions are made from non taxed salary, it is not entirely exempted from taxation. The funds (or tax deductions) are taxed at prevalent rates at the time of withdrawal. Therefore the savings are only tax deferred and not tax exempted.

401 K funds (or the tax deductions) are generally monitored by a third party. The annual contributions can be invested in a variety of stocks, funds, certificates and bonds. But it is up to the employer to provide these options to his/her employees. He has the sole discretionary power over the management of 401 K plan. The contributions to the plan can be matched by the employer also. He/she can contribute to the 401 K plan of his/her employees. This is generally done by the employers to retain the employees. Employer contributions are not included in the maximum limit on annual contributions of employees. Therefore they are over and above the salary of an employee.

The employer can provide the option of buying company stocks from these annual contributions. But investing the entire in amount in a single companies stocks, specially the one in which one is working, is not advisable. This would mean unnecessary risk and therefore should be avoided.

Usually this plan is offered by big companies only. This is because of the enormous costs involved in the administration of the plan. However, simpler options are available for self employed and former government entities also.

The maximum tax deductions possible are limited and set by the government. The employer can also impose his/her own limits for maximum employee contribution (or tax deductions). For example a firm may restrict the maximum contribution to 10% of the employees income. The governmental limit on maximum contribution generally depends on the inflation rate and varies every year. For people over 50 years of age, catch up limits are allowed. This allows people over 50 years to contribute more than others. For the year 2007, the maximum contribution limit for people below 50 years of age was $15,000. For people above 50 years of age this limit was set at $15,500.

It’s that time of the year again-tax time. Every year millions of Americans overpay on their annual income tax. This creates undue stress and frustration for many individuals and families alike. In this article you’ll find the 2009 tax brackets, unique tax deductions, and super powerful money saving tips-all designed to help you save when it comes to paying your annual taxes and living a prosperous life.

Here in the United States, we have what’s called the Graduated Income Tax System where individual taxpayers will determine how much their estimated income tax is based on their annual income and how they choose to file-single, married filing separately, married filing jointly, and head of household. This information will help you to determine which tax bracket applies to you. The 2009 tax brackets are show below:

Single

$0 – $8,350 — 10%
$8,350 – $33,950 — 15%
$33,950 – $82,250 — 25%
$82,250 – $171,550 — 28%
$171,550 – $372,950 — 33%
More than $372,950 — 35%

Married Filing Separately

$0 – $8,350 — 10%
$8,350 – $33,950 — 15%
$33,950 – $68,525 — 25%
$68,525 – $104,425 — 28%
$104,425 – $186,475 — 33%
More than $186,475 — 35%

Married Filing Jointly

$0 – $16,700 — 10%
$16,700 – $67,900 — 15%
$67,900- $137,050 — 25%
$137,050 – $208,850 — 28%
$208,850 – $372,950 — 33%
More than $372,950 — 35%

Head of Household

$0 – $11,950 — 10%
$11,950 – $45,500 — 15%
$45,500 – $117,450 — 25%
$117,450 – $190,200 — 28%
$190,200 – $372,950 — 33%
More than $372,950 — 35%

Note: Please consult your tax adviser for more information about the 2009 tax brackets.

Tip # 1: The Mindset

Obtaining, maintaining, and implementing the proper mindset when it comes to saving money is just like building a structurally sound foundation when it comes to building a house. If the foundation is structurally compromised, the house will not stand. Likewise, if you don’t obtain and apply the proper “mindset” when it comes to saving money, you could end up being financially compromised-deep in debt, losing your home or worse, having no savings and living paycheck to paycheck with no end in sight. Lucky for you, help has arrived!

The proper mindset can be applied in a few simple steps:

Step One: Your Unique Saving Opportunities

Everywhere you go, all around you, there are unique saving opportunities. These opportunities are only presented to those who have truly opened their eyes and who dare to question the negative status quo that has so fully engulfed our society. The simple sad truth is that many people have been conditioned to believe that we have lost our ability to bargain. But rather than discussing the problem, let’s talk about how we can solve it.

It all begins by paying attention to your unique saving opportunities that are specific to you, and then to apply a few simple ideas. Here are a few things you can do to challenge the status quo and appeal to your inner saver:

“Is That The Best You Can Do?”

Next time you make a purchase, simply ask the seller, “is this the best price you can give me?” These simple little words can work wonders! And if the seller won’t budge, ask for a discount or tell him you’re going to his competitor. It’s time to negotiate!

RetailMeNot.com

This neat website, and others like it, are chock-full of great coupons and discount codes you can use to save money. RetailMeNot.com even has a section under “printable coupons” where you can actually enter your zip code and it will automatically search for coupons in your local area-amazing!

Internet Research

The internet is the ultimate consumer saver tool. All you have to do is perform a quick search for “cheap, discount, low cost __ (product name) __” and you’ll be surprised at what you can find.

Step Two: Set a Budget

One of the most important aspects of saving money is to set a budget and track your expenses. An easy way to do this is to simply grab a sheet of blank paper or open up Microsoft Excel, or a similar program, on your home computer and list your expenses. After you’ve listed your expenses, put them into categories and then set a budget by going through each expense, looking for ways to cut back on unnecessary expenditures.

Step Three: Return and Report

After you’ve set your budget, make sure you track it and report and record how you did at the end of each and every month. This requires a little self control, but don’t forget to have faith in yourself. You can do it! If you need a little help, you can always establish a reward and consequence for keeping or not keeping within your budget. Follow this simple system, and make wise investments, and you’ll be surprised at how much your saving will grow.

Tip # 2: Unique Savings with Your Taxes

Now that you know what the mindset is, and how to apply it, here are a few ways of incorporating it with your taxes. There are many examples of this, but here are three that will do you well:

Children Under the Age of 17

Did you know that if you have a child that’s under the age of seventeen the government gives you $1,000 per child. That can really add up.

Charitable Donations

If you have a favorite charity you’re always contribution to, it can mean a big tax deduction for you. You can even write-off your tithing; so if you pay tithing to your church, put a smile on because this will save you money.

Home Business Expenses

Most of the expenses you incur while running a home business are tax deductable. Things like business stationery-pens, paper, printer ink, etc; phone lines, internet connection service charges, utility expenses, gasoline used for business, client meals, etc can be deductible. Don’t forget to keep good records, because it makes it much easier to look back at these expenses and claim the deductions.

Tip # 3: Use the Right Tools

This is probably one of the most useful tips you can use to help you save money and time. There are many programs out there that will assist you in establishing goals, tracking your budget, filing your taxes, and so much more. Here are two that I really like:

Mint.com – Free online budgeting software.

TurboTax.com – #1-rated and easy to use online tax filing software.

I hope this article has helped you to gain a clear vision of what is possible when you step out of the box and take a look around at the saving opportunities that are all around you. As they say, the ball is in your court now. What are you going to do? Jump back in the box and close the lid tight or start saving with your unique saving, and tax deduction, opportunities.

Tax Deduction Checklist

The best tax deductions checklists are found in three places:

Your past years’ tax returns; With your tax professional; and Through an online tax website

Past Years’ Returns

Just by looking at the deductions you have been able to take in the past, you will get a good idea of what deductions you can take this year. If you had mortgage interest, real estate taxes, IRA contributions, and charitable contributions last year – you probably have them this year as well. The same is true of medical expenses, various taxes, that safe deposit box you keep, and if you are required to pay certain expenses, like alimony. Finally, any business deductions you have taken in the past, for a home office, travel, mileage, etc. is likely to follow a pattern you have created and budgeted consistently.

Tax Advisors

Tax professionals are great at helping you identify deductions for one time occurrences and helping you organize your records and thoughts on how to approach the deductions that are available. You may need advice on issues that you have never faced before and those that run the risk of gaining or losing large sums of money. If so, your tax advisor is a great resource for addressing these issues.

Online Help

TurboTax Online, for example, has exceptional checklists for going over everything you need to consider before preparing your return and making sure you don’t miss anything important. It asks interactive questions, points out possible deductions you may forget, and reminds of the things you need to have or consider when taking a specific deduction.

For many baby boomers retirement is around the corner. It is amazing how fast the years have gone by. In 2007 the oldest baby boomers started collecting social security, and in the following eleven years another 77 million are expected to do the same.What About Social Security

Currently there are about 40 million retired people collecting social security. With another 77 million expecting to get their social security payments back with interest, that is going to be a tremendous strain on the system.

Most boomers (and those coming after them) realize that they cannot count on social security being around long enough for them to collect any of the money they paid into it. They are hoping that the government repairs the system, but they cannot depend on that.

Retirement Savings Accounts

For this reason it is very important that baby boomers and those following behind them start saving for retirement as soon as possible. A 25 year old who starts setting as little as $100 aside each month will have about $350,000 saved by retirement age (at 8% interest). In comparison, someone who starts saving at 40 or 50 years of age would need to put in a lot more than $100 a month to have $350,000 by age 67.

It is too late for baby boomers to start saving for retirement at 21, but it is never too late to begin saving. If your company offers a 401k sign up today. If they offer matching contributions, then sign up for the maximum deduction allowed.

A good retirement savings plan for small business owners is a Keough account. This is similar to a 401k. There is a certain amount you can put in each year that is tax deductible.

There are other retirement accounts available, too, such as traditional IRAs and the Roth IRA. The Roth IRA does not allow for tax deductions when you make the contributions, but you do not pay taxes on it when you make withdrawals.

Even if retirement is just a few years away, by starting to save today you will have something to live on. If on your 65th birthday you find that it isn’t enough to retire on, you can always work a few more years to build up the retirement fund some more.

How to Make Your Savings Stretch

Working part-time after you retire is often a good idea. It provides you with something to do that keeps you involved socially and exercises your mind. It will also make your retirement savings last longer.

Another way to make your retirement savings last longer is to start withdrawing from taxable accounts and let the tax-advantaged savings accounts compound for as long as possible.

Basically, baby boomers need to start planning for retirement now by having an IRA, 401k, or Keough (or a combination of these), and by getting out of debt now rather than later. The longer you wait to pay off credit card debt, car loans, and your house, the harder it will be for you to live on a fixed income when you reach retirement age.

If you want to control your finances, you can’t let them control you. You gain control by making wise day-to-day choices, following the path towards long-term goals and by building a foundation of necessities, such as insurance and emergency savings.

In order to do any of these things — make choices, realize goals or save — you have to budget. I know it doesn’t sound fun. But it is the one way to achieve financial success.

Start by thinking about it this way — by sticking with your plan, you will gain more than you ever expected. Budgeting will allow you to realize your goals. You will have more money to spend in the long run.

No matter how much or how little you make, budgeting is essential. If you already think you know where your money goes without writing it down, try writing it down for one month. You will be surprised at what those pennies are adding up to be.

Budgeting lets you know where your money goes. You are managing it. You are able to start saving for a home, for college and for retirement. You can even find room for that trip to Hawaii.

Someone said once, and I really like the idea, that you can’t just make more money to have more money. You have to spend less than you make.

I will admit that software programs make it nice to track a budget. I used one for years to track our spending through our checking accounts. Not only can you easily balance your checking, you can print out reports that divide your spending into categories. You can easily print out the totals of your tax deductions. Many programs even allow you to scan your tax receipts in for safe keeping.

We no longer use the program, due to my husband wanting to help with the financial management. He is uncomfortable with computers. So we keep log books instead. The key to tracking your expenses isn’t necessarily to write down everything you spend when you spend it. It is to ask for and keep all of your receipts for things. If you don’t get a receipt, you’ll have to write it down.

So either way, take the time to add up all of those spending categories. For example, a daily cup of coffee can cost you $547 a year. If you smoke two packs of cigarettes a day, you are spending approximately $3000 a year. If you eat your lunch out every day, you could spend around $2,600 a year. Three drinks after work once a week can add up to $1092.

Cut all those things out and you could save over $7000 a year. That’s a lot of money. Did you know that coffee, cigarettes, lunch and drinks were costing you that much money?

By budgeting and tracking your spending, you are able to see the areas you can cut back on. You may find that you don’t have to sacrifice very much to achieve your goals. After all, what is more important, putting $7000 a year into your retirement savings or keeping up with your current spending habits?