Retirement accounts

I’m always asking people if they are saving for retirement. Sometimes they say they’re invested in an IRA or 401k. Many of them think that those are investments and don’t realize they are just tax free vehicles(no tax consequences¬†while the funds remain in the box).

Simply put there are two type of tax free vehicles: one where the money goes in before it is taxed and one where it goes in after it is taxed.

If the money went in before being taxed then it comes out  as regular income. If the money has already been taxed then it comes out tax free (unless they change the tax laws).

One idea is to have both tax deferred and after tax retirement accounts. This way you can take advantage of some tax savings up front and still keep you tax burden low during retirement since the regular income amount will be low.

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