Retirement and Taxes: How to Stop the Tax Machine During Your Retirement Years

Tax Free Retirement: You can retrieve tax-free income after you retire. Few people know about a unique retirement plan that can save you thousands.

The Lowdown: The Roth IRA and Roth 401(k) plans are very similar to their counterparts, the plain old IRA and 401(k). With the regular IRA, you get an immediate tax deduction, but you have to pay income taxes when you withdraw money. With the Roth IRA and 401(k), you cannot get an upfront tax deduction. But you do not pay taxes on the money you withdraw. So how can this save you thousands of dollars?

Withdrawal: The Roth IRA and 401(k) saves you money when you withdraw. You don't have to pay taxes when you withdraw money like you have to with a normal account. That saves you more money than the upfront Tax Break of the normal IRA and 401(K).

Opening One: If your job offers the Roth 401(k) program, you automatically qualify for it. But funding a Roth IRA is different. Qualifying will depend on how much money you make. To invest the full $5,000 in a Roth IRA you must make $159,000 if married filing jointly and $101,000 if filing single.

More Benefits: The Roth IRA and 401(k) have more benefits than saving you cash. For instance, with a regular IRA plan you have to withdraw money the April after you turn 70 ½. If you don't, you'll face a penalty fee. With the Roth IRA, you never have to withdraw money until you want to. You can even pass it along to your children.

Final Tip: The Roth IRS even affects your social security. You can have your social security check taxed less in retirement. That's because withdrawals from Roth IRAs are excluded from the IRS's calculations when they decide your taxable income.

Depending on your situation, there are many benefits to trying the Roth IRA and 401(k) plans. Try it out, and see if you qualify for big savings.