Many Americans don't understand how tax incentives for 401(k) s and similar retirement plans work, so it is up to financial advisors to educate participants about the best ways they can take advantage of them.
According to Mike McNamee, chief public communications officer at the Investment Company Institute, one of the traps that people fall into is believing that benefits are driven by a saver's tax bracket.
The biggest reason for the misunderstanding is that a tax deferral into a defined contribution plan is often lumped together with tax deductions like mortgage interest expense from income and tax exclusions like employer-provided health insurance premiums from income.
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