Retire without taxes

Only one savings plan gives you the chance to free yourself from taxes in retirement. Are you making the most of it?

1 of 12
BACKNEXT
1. How is a Roth different?
Think of a Roth as the mirror image of a regular IRA or 401(k): Instead of collecting a tax benefit up front, you get your break at the back end. When you fund a traditional IRA, you can take an immediate tax deduction on your contributions, but you then pay income taxes when you pull your money out. When you open a Roth IRA you're not entitled to a deduction, but you can withdraw all your money, including earnings, tax-free. The Roth 401(k) works the same way.

Mathematically, there's no difference between getting a tax break at the beginning or end. All else being equal, you end up in the same place whether you pay taxes at the outset or in retirement.
By Walter Updegrave, Illustrations by Christoph Niemann

NEXT: Why would I pick a Roth?
Last updated September 16 2008: 11:34 AM ET
More Galleries
Cutting health care's cost
Cutting health care's cost
These Money heroes -- one in the halls of government, the other on Houston's freeways -- aim to ease the financial pain of medical treatment. More
Best deals on clothes
Best deals on clothes
Money magazine's Best Deals on Everything: Your guide to the latest bargains in men's suits, women's shoes, cotton T-shirts and gold jewelry. More
Financial help for people with disabilities
Financial help for people with disabilities
These Money heroes devote their energies to supporting the careers and economic health of those with disabilities. More

Special Offer
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2013 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2013 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2013. All rights reserved. Most stock quote data provided by BATS.
© 2013 Cable News Network. A Time Warner Company. All Rights Reserved. Terms under which this service is provided to you. Privacy Policy. Ad choices .