Being a huge fan of investing in Roth IRA retirement accounts, I was recently speaking with a friend who had some misconceptions. She had made mention that she should begin to invest in this type of account. While we were talking, I found out that she thought all retirement savings accounts meant that the money in the account would be tied up until you reach the age of at least 59 1/2. When she came to the realization that there are many ways to make IRA withdrawals before reaching that age, she quickly became very interested in how a Roth IRA could be of benefit to her.
Retirement accounts such as 401(k)s, 403(b)s and traditional IRA accounts are tax-deferred. This means that all money that is contributed to the retirement account is done so before any taxes are paid. This is the reason why your W2 can show a lower gross income amount. The money was placed into the tax-deferred account for retirement before taxes were calculated and deducted. Your federal and state taxes are based on your adjusted gross income, known as AIG. By making use of these tax-deferred retirement accounts, your AIG can be reduced. Continue reading ‘Retirement Accounts – What Is Tax-deferred? What Is Tax-Exempt?’ »