Taxes For Dummies

Chapter 22

Trimming Taxes with Retirement Accounts

IN THIS CHAPTER

Understanding the advantages and potential pitfalls of retirement accounts

Comparing the different types and rules of retirement accounts

Prioritizing account options, and understanding transfers and withdrawals

Saving and investing through retirement accounts is one of the simplest yet most powerful methods to reduce your tax burden. Understanding the myriad account options and rules isn’t simple, but we do our best at explaining them in this chapter.

Unfortunately, most people can’t take advantage of these plans because they spend too much of what they make. So not only do they have less savings, but they also pay higher income taxes — a double whammy. And don’t forget, the more you spend, the more sales tax you pay on purchases. To be able to best take advantage of the tax savings that come with retirement savings plans, you should spend less than you earn. Only then can you afford to contribute to these plans.

Identifying Retirement Account Benefits

Retirement may seem like the distant future to young folks. It’s often not until middle age that warning bells start stimulating thoughts about what money they’ll ...