How retirement accounts are taxed. It's simpler than it sounds.

You pay taxes on just about everything. Your retirement savings is no exception. But you have some control when you pay taxes on your retirement money by selecting what type of contributions you want to make. You can pay those taxes now or when you're retired.

Let's start with the first option, paying taxes now. This is done with Roth accounts. This money is taxed before it's added to your retirement savings so that it's not taxed when you withdraw it in retirement. For example, say you put $4,000 a year into a Roth IRA. You pay your taxes on this money. Then it goes into the account.

Then in retirement, you'll see the tax benefit because you were already taxed on this money when you put it into the account. You won't pay income tax on either your original contributions or any investment growth when certain conditions are met. If you have a lower income now, but assume you might be in a higher tax bracket when you retire, this may be a good tax saving strategy.

Then there are retirement accounts that take the opposite approach, pre-tax accounts. These are referred to as tax advantaged. Why? You don't immediately pay income tax on the money you put into these accounts. Instead, you pay tax when you withdraw it and use it as income in retirement.

Here's how it works. If you have a retirement account through work, you choose how much you want to save, say, 10%. That amount, along with other income adjustments such as health savings accounts is deducted from your gross pay. That equals your Adjusted Gross Income, or AGI for short. Why does a lower AGI matter? Because come tax season, a lower AGI effectively reduces the amount of income on which you owe taxes.

Eventually, when you retire and withdraw this money, you'll pay taxes on it. How much actual tax you pay depends on your tax bracket in retirement. When you save in those accounts, you also assume you'll be able to pay those income taxes when you retire and withdraw the funds.

So which is the better tax strategy, paying taxes on contributions now or in the future? Well, there may be benefits to both. Having a mix of account types may be a good thing for retirement and for your taxes. You'll see some tax savings now and some in retirement, too. Learn more at principal.com/retirementtaxes.