When you think about your retirement accounts, you probably focus on factors like your contributions, investment choices, and growth potential. However, there’s another important factor that often goes unnoticed – taxes.

Taxes can have a significant impact on your retirement savings. Whether you have a 401(k), IRA, or other retirement account, taxes play a silent but crucial role in determining how much money you’ll actually have available to fund your retirement.

One of the key ways taxes affect your retirement accounts is through the type of account you choose. Traditional retirement accounts, like traditional 401(k)s and traditional IRAs, offer tax-deferred growth. This means that you don’t pay taxes on the contributions you make or the investment earnings until you start withdrawing money in retirement. While this can provide immediate tax benefits, it also means that you’ll owe taxes on every dollar you withdraw in retirement.

On the other hand, Roth retirement accounts, like Roth 401(k)s and Roth IRAs, offer tax-free growth. With these accounts, you pay taxes on the contributions you make upfront, but you won’t owe any taxes on the withdrawals you make in retirement. This can be a huge advantage, as it allows you to maximize your savings and keep more of your hard-earned money in retirement.

Additionally, taxes can impact your retirement savings through required minimum distributions (RMDs). Once you reach a certain age, typically 72 for most retirement accounts, the IRS requires you to start taking distributions from your retirement accounts. These RMDs are taxable, so they can increase your tax liability in retirement and reduce the amount of money you have available to fund your lifestyle.

Another important consideration is the impact of taxes on your investment choices. Different types of investments are taxed differently, so it’s important to consider the tax implications of your investment strategy. For example, capital gains are taxed at a lower rate than ordinary income, so holding investments that produce capital gains in a taxable account may be more tax-efficient than holding them in a tax-deferred retirement account.

In order to maximize your retirement savings and minimize your tax liability, it’s important to work with a financial advisor who can help you develop a tax-efficient retirement strategy. By understanding the role that taxes play in your retirement accounts and making strategic decisions, you can ensure that you have the resources you need to enjoy a comfortable retirement. Remember, taxes may be a silent partner in your retirement accounts, but with proper planning, you can ensure that they work in your favor.

LEARN MORE ABOUT: 401a Plans

REVEALED: Best Investment During Inflation

HOW TO INVEST IN GOLD: Gold IRA Investing

HOW TO INVEST IN SILVER: Silver IRA Investing