By Brad Sanders, CFP®, CRPC®

When it comes to retirement income, you have three main choices for the tax treatment of your income. Pay taxes now, pay taxes later, or some combination of both. Predicting the U.S. Tax Code decades in advance is a losing proposition so solid financial plans include future income tax diversification.

Most employer-sponsored plans such as a 401(k) are attractive ways to build pre-tax retirement money and take advantage of employer matches. These funds are taxed at ordinary income rates when withdrawn in retirement and they offer the benefit of lowering your taxable income today.

Roth IRAs offer the benefit of tax-deferred growth and potentially tax-free withdrawals in retirement. They are subject to certain eligibility requirements for contributions and withdrawals. Roth IRAs are funded with after-tax dollars, so you do not receive a current tax benefit from contributing.

Lastly, a taxable account can offer the benefit of paying tax only on income and gains accumulated each tax year. If you invest wisely in a tax-efficient portfolio, you can build wealth in a way that provides tax-favorable income in retirement. There are no contribution or distribution restrictions in a taxable account, so this can be a flexible way to supplement your retirement savings.

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Brad SandersBrad Sanders has been a lifelong resident of Central PA. He began in the financial services industry in 2007. Prior to that, he attended St. Vincent College in Latrobe, PA where he was also a member of the baseball team. He earned his Certified Financial Planner® certification in 2012 and his Chartered Retirement Planning Counselor® designation in 2013.