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Tax Evasion vs Tax Avoidance
As the old joke goes, what's the difference between tax avoidance and tax evasion? About twenty years.
Tax avoidance is (legally) reducing the amount you owe in taxes. Tax evasion is (illegally) paying less than you owe in taxes. Someone avoiding taxes might use a tax shelter such as a retirement account. Someone evading taxes might need a swiss bank account. Clear enough?
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Retirement Savings and Taxes: Protecting Your Assets
One of the major considerations in deciding how to allocate your retirement funds is the tax treatment each retirement vehicle receives. Which tax treatment is best for you depends on a number of factors, but it basically boils down to one question: is it more important to not be taxed now, or to not be taxed later?
Tax-advantaged retirement plans generally fall into one of two categories. Either you are allowed to invest with pre-tax dollars, or you don't pay taxes on the earnings. Let's take a look at the advantages of each.