Tax Free Retirement

The government wants you to save for retirement. To encourage this, they offer you special tax incentives to save. There are several savings methods that allow you to put money into savings for retirement without requiring you to pay tax on that money. As an example, consider $2,000 that you earn and stick in your checking account. When you earn $2,000 the government will take about 30% in taxes. Most of this money is taken out before it goes to your paycheck, so you never see it. So when you earn $2,000 you actually only get $1,400.

If you put $2,000 in certain retirement accounts however, the government doesn’t take their 30%. So when you earn $2,000 you get to keep put the entire $2,000 into savings. When you go to take it out at retirement, you have to pay taxes on it, but since your are likely to be in a lower tax bracket when retired, you’ll pay much less in taxes. Also, by putting the entire $2,000 into a savings account now, you get the benefits of compounding interest on an extra $600 which is pretty significant.