After Tax Strategy
– when you set aside a portion of your after tax income
into an account earmarked for retirement. Taxes are paid annually on any
earnings. An example of this type of savings is a Certificate of Deposit.
Tax-Deferred Strategy
– when you set aside a portion of your after tax
income for retirement, earnings on the account grow tax-deferred. When
retirement income is taken, taxes are due on the tax-deferred gain. A
Non-Deductible IRA or an annuity is an example of this type of savings.
Pre-Tax Strategy
– might include an Employer sponsored qualified plan,
like a 401(k) and 403(b) plan. You don’t pay current taxes on
contributions made to the plan and earnings grow tax-deferred. Later
when you take retirement income the benefits are income taxable.
Tax-Free Strategy
– is similar to the Tax-Deferred Strategy: you set aside a
portion of your after tax income, and earnings grow tax-deferred. Retirement
income is received income tax-free. A Roth IRA is an example of this type of
savings. Another type of financial vehicle is permanent life insurance.
