If you are in the 32% combined federal and state marginal tax bracket, each $100 that you contribute to your employer's tax-deferred plan saves you 32% or $32 on your taxes. This means that by putting away $100 into a tax-deferred plan for your future, you are really only investing $68 after taxes!

If your federal marginal tax bracket is 25%, a $1,000 contribution reduces taxable income and saves approximately $250 in taxes. Refer to the Investment Strategies Course for more information.

Just know that even with tax-deferred growth, your distributions will be subject to income taxes upon withdrawal. Also, your marginal tax rates may be just as high during retirement as during the accumulation phase. However, tax-deferred growth may still accumulate more for retirement.

It is important to be aware of how your income is affected by taxes. Also, you should consider your time-line, current and anticipated income tax brackets when making investment decisions — they may further impact the results of the comparison.

Contributing to your employer's tax-qualified plan is one of the most important habits of sound financial planning — Pay Yourself First!

Ms. Gotrocks has $100,000 accumulated in her tax-deferred retirement plan by age 62. However, Ms. Lessing has only about $70,000 saved in her taxable account by the same age; her investment’s gains were eroded by taxes during the accumulation period.

Upon retirement, both retirees invest their lump sums into conservative portfolios that earn 6% each year during retirement. Distributions on both are taxable.

• $100,000 @ 6% = $6,000/year before tax $4,500/year after tax*

• $70,000 @ 6% = $4,200/year before tax $3,150/year after tax*

* Assumes 25% federal marginal income tax bracket

Note that the maximum rates of capital gains may be lower for certain taxable investments, which would then reduce the difference in performance between the accounts.