This concept is extremely important and can have a massive impact on your retirement.
Here it is short and sweet:
- Traditional IRA / 401k – Save tax today; pay taxes later (in retirement). When you make contributions to a Traditional IRA / 401k, you reduce your taxable income NOW. When you retire and begin pulling money from this type of account, you will pay income tax on the amount you pull out.
- ROTH IRA / 401k – Pay tax today; NEVER PAY TAX AGAIN! Contributions into a ROTH IRA / 401k will NOT reduce your taxable income. BUT, once that money is in a ROTH type account, you will never pay tax on that money again.
Please don’t wait another day to figure this out…your retirement depends on it!