In the Video above, Scott Farnsworth, Central Florida's Tax-Free Retirement Expert answers a frequently asked question: What is the difference between tax-free and tax-deferred retirement savings?
"Tax deferred is a fancy way of saying that you will pay the tax when you take the money out. Tax free means that the money is not taxed when you receive it. What's better for you? Here is an analogy that will help you understand. I'm a gardener. I raise sweet corn. In this package of corn there are about 120 kernels. If I plant these seeds, I'll get 120 stalks, and each stalk will have either 1 or 2 ears. That's 180 years on average. How many kernels is that? Since each ear of corn has 640 kernels, that's 115,200 kernels of corn. Here's the question, do you want to pay tax on the seed, which is what you do with a Roth IRA or a TRA, or do you want to pay tax on the harvest, the 115,200 kernels, which is what you pay with a 401k or a conventional IRA. To me it's a pretty easy question to answer."
What is the difference between tax-free and tax-deferred retirement savings?