Tax-favored retirement accounts such as individual retirement accounts (IRAs) and 401(k)s are the best places to save for your retirement. The different types of plans have different features, but most of them allow you to defer taxes on the money you save and the returns you earn within the account.
“Tax deferral” means that the amount you contribute escapes the usual income taxes until you start withdrawing the money years later. As a result, more of your money can earn investment returns over time – an enormous advantage over ordinary taxable accounts.
The plans have other advantages as well. For example, many employers will match part of their workers’ contributions to employer-sponsored retirement plans such as 401(k)s.
To determine the best way for you to invest your retirement money, visit our retirement investing guide.