The 401 (k) and traditional IRA are two common types of tax-deferred savings plans. The money saved by the investor is not taxed as income until it is withdrawn, usually after retirement. Since the money saved is deducted from gross income, the investor gets an immediate reduction in income tax. Tax-exempt accounts offer future tax benefits instead of tax breaks on contributions.
Retirement withdrawals are not taxable. Since account contributions are made with after-tax dollars, meaning they're funded with money you've already paid taxes on, there's no immediate tax advantage. The main benefit of the tax-exempt structure is that investment returns increase and can be withdrawn completely tax-free. Yes, a government 457 (b) plan can be modified to allow for designated Roth contributions and transfers within the plan to designated Roth accounts.
