Would a Roth IRA Save You Money?

Would a Roth IRA Save You Money?

While everybody needs to save for retirement, not everyone will use the same approach to doing so. Insofar as retirement accounts are concerned, you have two basic options to choose from: a tax-deferred retirement account, or a Roth retirement account. Here's how to decide which one is best for you.

Tax-deferred retirement savings accounts, including the traditional 401(k) and IRA, work on the "save money now, pay later" system. When you contribute to a tax-deferred account, you don't have to pay taxes on the money you contributed, but you will have to pay taxes when you later take the money out.

When contributing to a 401(k) account, the tax savings happen automatically -- your contribution comes out of pre-tax dollars, then the remainder of your paycheck is used to calculate your income taxes. Getting the tax break on an IRA contribution is a bit more complicated, but it works out to much the same thing: You list the amount you contributed to traditional IRAs on your tax return, and you can deduct that amount from your income.

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Source: Fool.com