If you were a farmer, would you rather be taxed on the seed or the harvest?
When you save on a before tax basis, such as a Traditional IRA, your contributions are tax deductible. The trade off is all income received is taxed as ordinary income. If you make a withdrawal prior to age 59½ you may incur an additional 10% penalty. This leaves you exposed to potentially higher future tax rates.
If you believe taxes are going up this could be devastating to your retirement income. In this example, you are taxed on the harvest. On the tax-free side, in our example of a Roth IRA, the contributions, i.e., (the seeds), are taxed before they are deposited and both the contributions and earnings may be tax-exempt3, thereby insulating you from possible future tax rate increases.
http://anallianceforlife.com/retirement/tax-free-retirement/www.KatherineZacharias.com
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