One of the biggest selling points of 401(k) and IRA retirement plans is that the money you put into them isn’t taxed right away. Bring out the bubbly to celebrate, right?!
Not so fast.
First of all, some people – hopefully not you! – mistakenly believe money placed into these retirement plans is “tax free.” It isn’t. It is “tax deferred,” meaning that you will pay tax on that money when you withdraw from your retirement plan down the line.
Deferred taxes might sound good, but deferring your taxes is like putting off a visit to the dentist. The problem compounds and will only get worse.
Deferring taxes creates a dangerous potential tax time bomb because you don’t have the answers to two critical questions…