We need to look at the two ways to save.1. Nonretirement account:
Earn income, pay the tax on it, and invest that money. You then pay taxes on the dividends, interest, and capital gains in this account.
2. Retirement account:
Put money in these accounts and you get a deduction. Basically you don't pay income taxes on the money when you invest it. The investment, the dividends, and the interest aren't taxed until you take it out.
Retirement accounts help you save more in two ways. First by reducing the tax you pay now and letting that savings compound for many years. Second by deferring taxes on dividends, and interest in these accounts, allowing even more of your money to compound. In other words retirement accounts are so powerful because the taxes you would have paid in a non retirement account are left in retirement accounts to grow until you take them out. See you Thursday Finwiz.
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