When searching for a fruitful savings account to grow a retirement fund, things like taxes make a huge difference. Depending on your wants and needs, there are various plans with various rules surrounding taxes. For some plans, you have to pay taxes before you make your contribution, or maybe a plan taxes you upon withdrawal. In order to make the best financial decision for retirement, it is useful to know the difference between a tax-free retirement plan and a tax-exempt retirement plan.
To start, what does tax-free retirement savings mean? A tax-free retirement savings means that the contributions you make into your savings account are tax-free and are also tax-free upon withdrawal. On the other hand, a tax-free savings account, or a TFSA, is an account where all of your contributions, dividends, capital gains, interest earned, etc., are not taxed. You can also withdraw your money tax-free. This allows for you to save your money on taxes since whatever happens within your account won’t be taxed. A tax-free retirement savings is very appealing for most people because you can in turn, give yourself more money to grow for retirement and give less money to Uncle Sam.
Now, what does a tax-exempt retirement savings mean?