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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?

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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
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