Marielle Segarra

So that's the cool thing, right?

You will only pay taxes once you start making withdrawals, ideally in retirement.

The reason this setup works to a lot of people's advantage is that you will very likely have a lower tax rate when you retire than you do now because your income will probably be lower.

So take somebody with a 25 percent tax rate.

They retire with a million dollars in their 401k and they withdraw what they need to live their life.

Takeaway two, with the traditional kind of retirement account, the 401k, the 403b, the IRA, you take a certain amount of your income and you shield it from taxes.

Then your money grows tax-free and you only pay taxes when you start withdrawing it later on.

And the thinking here is that you'll likely have a lower tax rate in retirement than you do now because your income will probably be lower.

After the break, I'll walk you through the other main type of retirement account and its benefits.

And we'll also talk about how to choose between them.

Spoiler, you don't necessarily have to choose.

Before the break, we talked about traditional retirement plans.

On the other hand, you have Roth accounts, and you'll recognize these because they all say Roth in the title.

Roth IRA, Roth 401k, Roth 403b.

Which means you'll never pay taxes on your investment profits.

Roth accounts are an especially good option for folks who currently have a low tax rate, for instance, because they have a low income.

Here's one scenario Mark gave me.

But that's not the only reason to put money in a Roth.

Here's another advantage they have over traditional plans.

If you make early withdrawals from a traditional plan, you'll pay a penalty.