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How to (Legally) Dodge the Tax Man in Retirement

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taxes retirementSaving for retirement isn't just a smart move for the long run. It can also cut your taxes right now.

But just because you can reduce your current tax bill doesn't mean it's always the right move. For many workers a smarter option -- and one made possible by more and more employers -- is a retirement plan that completely eliminates your tax bill down the road.

Make Way for the Roth 401(k)

401(k) plans have been staple benefits from employers for decades. Your retirement plan at work lets you have money taken straight out of your paycheck, and in some cases, your employer matches those funds with extra money of its own.

In a regular 401(k), the money you set aside reduces your taxable income for the year, potentially saving you hundreds or even thousands of dollars in current-year taxes. But a relatively new type of retirement plan -- called the Roth 401(k) -- can be an even better idea for some workers.

Based on the Roth IRA, these retirement plans don't give you the same up-front tax break. But unlike regular retirement plans, you don't have to pay a cent in tax when you pull money out of a Roth 401(k) to spend after you retire.

Is the Tax Trade-Off Worth It to You?

Currently only a very small number of workers who have access to Roth 401(k)s at work have taken advantage of them. In part, that's because you lose your current-year tax savings when you contribute to a Roth 401(k). (Apparently, the idea of paying taxes today on money that will be locked up for decades in a retirement account doesn't sit well with many workers.)

But that only tells half the story. For many workers -- especially those who are early in their careers -- you can expect your income to go up over time, as well as your corresponding tax rates. Giving up on a deduction now essentially lets you preserve it until a time when it might be worth a whole lot more.

Take a simple example: Many taxpayers currently pay taxes in the 15% bracket. For them, putting aside $2,000 in a traditional 401(k) gives them a $300 boost to their tax refund. But by the time they retire, they could well be in the 25% or higher tax bracket. When they withdraw that money in the future, they'll pay far more in taxes -- not just on the original $2,000
they invested, but on any gains they earned between now and then.

With a Roth 401(k), you give up that $300 refund now. But in exchange, you never have to worry about whether higher tax rates will end up costing you more later -- because you'll never have to pay any taxes on that money ever again. All the growth on that money is tax-free even when you use it in retirement. In the long run, that can add up to big tax savings.

If that's a trade-off you're willing to consider, it can make a big difference in how much after-tax money you have when you really need it.

Ask Around

Get in touch with your HR department to find out whether your employer offers a Roth 401(k) plan. Depending on your personal financial situation, switching from a regular 401(k) to a Roth could make you a lot richer in your golden years.


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tv22mac

STARTED USNIG TURBO TAX 1988. TAX LAWS HAVE BECOME INCREASIGLY MORE COMPLEX.
TURBO TAX HAS BECOME LESS HELPFU.L. BEE N YEARS SINCE A USEFUL ANSWER TO QUESTIONS.
TODAY A QUESTION DOSN'T REVEAL LOCATION OF ANSWER

TYPICAL USELESS ANSWER

March 15 2012 at 2:25 PM Report abuse rate up rate down Reply
tv22mac

STARTED USNIG TURBO TAX 1988. TAX LAWS HAVE BECOME INCREASIGLY MORE COMPLEX.
TURBO TAX HAS BECOME LESS HELPFU.L. BEE N YEARS SINCE A USEFUL ANSWER TO QUESTIONS.
TODAY A QUESTION DOSN'T REVEAL LOCATION OF ANSWER

March 15 2012 at 2:23 PM Report abuse rate up rate down Reply
wongtpa

Today, march 13, 2012, you are still working for the government!

March 13 2012 at 6:11 PM Report abuse rate up rate down Reply
wongtpa

Do away with the IRS and pass a flat tax. Better for all of us!

March 13 2012 at 6:05 PM Report abuse rate up rate down Reply
danawinnie

Any senior citizen who is retired and HAVE NO CHILDREN IN THEIR HOME should be exempt from SCHOOL TAXES.....My town is raping us seniors....My school taxes alone are over $10,000 yearly.....A CRIME....Parents of kids in school getting the benifits SHOULD BE PAYING FOR THIS NOT RETIRED SENIORS TRYING TO MAKE ENDS MEET....LONG ISLAND SUCKS IN THIS AREA......ALL DAMN CROOKS....ESPECIALLY IN ROCKVILLE CENTER, NEW YORK, LONG ISLAND

March 13 2012 at 5:45 PM Report abuse rate up rate down Reply
danawinnie

Any senior citizen who is retired and HAVE NO CHILDREN IN THEIR HOME should be exempt from SCHOOL TAXES.....My town is raping us seniors....My school taxes alone are over $10,000 yearly.....A CRIME....Parents of kids in school getting the benifits SHOULD BE PAYING FOR THIS NOT RETIRED SENIORS TRYING TO MAKE ENDS MEET....LONG ISLAND SUCKS IN THIS AREA......ALL DAMN CROOKS....ESPECIALLY IN ROCKVILLE CENTER, NEW YORK, LONG ISLAND

March 13 2012 at 5:45 PM Report abuse rate up rate down Reply
danawinnie

Any senior citizen who is retired and HAVE NO CHILDREN IN THEIR HOME should be exempt from SCHOOL TAXES.....My town is raping us seniors....My school taxes alone are over $10,000 yearly.....A CRIME....Parents of kids in school getting the benifits SHOULD BE PAYING FOR THIS NOT RETIRED SENIORS TRYING TO MAKE ENDS MEET....LONG ISLAND SUCKS IN THIS AREA......ALL DAMN CROOKS....ESPECIALLY IN ROCKVILLE CENTER...

March 13 2012 at 5:42 PM Report abuse rate up rate down Reply
wongtpa

75 and older should be immune from taxes!

March 13 2012 at 2:25 PM Report abuse rate up rate down Reply
kilandam

Dhimmitude -- I had never heard the word until now. Type it into Google and start reading. Pretty interesting. It's on page 107 of the healthcare bill. I looked this up on Google and yep, it exists.. It is a REAL word.


Word of the Day: Dhimmitude

Dhimmitude is the Muslim system of controlling non-Muslim populations conquered through jihad. Specifically, it is the TAXING of non-Muslims in exchange for tolerating their presence AND as a coercive means of converting conquered remnants to Islam.


ObamaCare allows the establishment of Dhimmitude and Sharia Muslim diktat in the United States . Muslims are specifically exempted from the government mandate to purchase insurance, and also from the penalty tax for being uninsured. Islam considers insurance to be "gambling", "risk-taking", and "usury" and is thus banned. Muslims are specifically granted exemption based on this.

How convenient. So I, as a Christian, will have crippling IRS liens placed against all of my assets, including real estate, cattle, and even accounts receivables, and will face hard prison time because I refuse to buy insurance or pay the penalty tax. Meanwhile, Louis Farrakhan will have no such penalty and will have 100% of his health needs paid for by the de facto government insurance. Non-Muslims will be paying a tax to subsidize Muslims. This is Dhimmitude.

I recommend sending this onto your contacts. American citizens need to know about it --

March 13 2012 at 1:36 PM Report abuse rate up rate down Reply
kilandam

It seems very important to pursue the exact definition of this word, which is employed in the controversial health care bill on page 107, but not easily found in any English or American dictionaries.



Check Snopes and Google, but don't stop there, take the time to visit your Library.


Dhimmitude -- What does it mean?

Obama used it in the health care bill.

Now isn't this interesting? It is used in the health care law.



Dhimmitude -- I had never heard the word until now. Type it into Google and start reading. Pretty interesting. It's on page 107 of the healthcare bill. I looked this up on Google and yep, it exists.. It is a REAL word.


Word of the Day: Dhimmitude

Dhimmitude is the Muslim system of controlling non-Muslim populations conquered through jihad. Specifically, it is the TAXING of non-Muslims in exchange for tolerating their presence AND as a coercive means of converting conquered remnants to Islam.


ObamaCare allows the establishment of Dhimmitude and Sharia Muslim diktat in the United States . Muslims are specifically exempted from the government mandate to purchase insurance, and also from the penalty tax for being uninsured. Islam considers insurance to be "gambling", "risk-taking", and "usury" and is thus banned. Muslims are specifically granted exemption based on this.

How convenient. So I, as a Christian, will have crippling IRS liens placed against all of my assets, including real estate, cattle, and even accounts receivables, and will face hard prison time because I refuse to buy insurance or pay the penalty tax. Meanwhile, Louis Farrakhan will have no such penalty and will have 100% of his health needs paid for by the de facto government insurance. Non-Muslims will be paying a tax to subsidize Muslims. This is Dhimmitude.

I recommend sending this onto your contacts. American citizens need to know about it --

March 13 2012 at 1:35 PM Report abuse rate up rate down Reply
1 reply to kilandam's comment
charlie

wow go back under your rock

March 13 2012 at 9:02 PM Report abuse rate up rate down Reply