I am reading the simple path to wealth, easy to follow so far, focused and short chapters but I am getting confused on the 401k and deductible IRA when it says it is tax benefit and tax free growth but then taxes are due when the money is withdrawn. So I am not clear why it is called tax benefit and tax free when you are actually going to pay taxes, it is just a matter of when. Can someone help understand this? Thanks

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You get a tax deduction now. The money grows without paying taxes and then you pay the tax when you withdraw. With Roth you pay tax now, the money grows without paying taxes and then no tax is due when you withdraw either.

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Thanks!

Assuming you are talking about traditional 401k or IRA, I would say tax deferred growth, not tax free. For Roth I would say tax free growth.

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Yes I am talking about pre-tax 401k and traditional IRA. Thanks for your response!

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Also, it’s about the growth within the accounts. Normally if you sell stock for a profit in a non protected account it is a taxable event, even if you are just rebalancing and not taking the money out to spend. In protected accounts like IRA and 401k the sales and growth within the account do not have intermediate taxable events which cut into growth. Hence the tax advantage.

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