When you’re thinking ahead to retirement, tax planning should be part of your decision-making process.
Many investors have several types of accounts that can be aligned with specific investing goals. Some are subject to taxes, while others have tax advantages. Here are two employee contribution types to consider:
- Tax-deferred, such as traditional pre-tax 403b, 457b, and 401k plans, allow you to realize immediate tax deductions up to the full amount of your contribution, but future withdrawals from the account will be taxed at your ordinary-income rate.
- Tax-exempt, such as Roth 403b, Roth 457b, and Roth 401k plans, don’t deliver a tax benefit when you contribute to them. Instead, they provide future tax benefits; withdrawals at retirement are not subject to taxes.
Both types of retirement accounts minimize the amount of lifetime tax expenses someone will incur, which provides incentives to start saving for retirement at an early age. Make sure to contact a financial consultation to determine which tax advantage will work best for you.
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