Carrollton-Farmers Branch ISD

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401(a) Plan

Some of the advantages of having a 401(a) plan is that it effectively increases your after tax income since contributions are deducted before your income tax is calculated. Since most employers set up a system where contributions are automatically deducted out of your paycheck, the dollar cost averaging effect takes place. Dollar cost averaging spreads the cost of the investment over a long period of time which can provide protection from fluctuations in market prices; the opposite of dollar cost averaging would be to make one huge purchase of investment assets once. Dollar cost averaging allows investors to eventually build up a large amount of investment assets by incrementally buying them over a long period of time.

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