If you're saving for your retirement, there are specially designed accounts that give you tax benefits. You should take advantage of at least one of these a 401(k), 403(b), IRA, or Roth IRA and understanding the tax benefits of each will help you pick the right one.

All of these accounts allow your retirement investments to grow quickly, because the earnings are not taxed each year. The difference between them is when you actually pay the taxes.

A traditional IRA account is tax deferred. Any contributions that you make are tax deductible. Once the money is in the account, it continues to grow tax free until you reach retirement age. When you begin withdrawing money from your retirement account, these distributions are taxed.

There are two benefits from this method. Since your contributions lower your taxable income, you could end up in a lower tax bracket. This could mean substantial savings each year. You may also be in a lower tax bracket when you retire. By deferring some of your taxes until retirement age, you'll end up paying less.

401(k) and 403(b) plans are similar to traditional IRAs. They are also tax deferred, so your contributions lower you taxable income and you will eventually be taxed on your distributions.

The difference is that both of these are employer sponsored programs. 401(k) plans are traditionally for businesses, while 403(b) plans are reserved for non-profit organizations. In terms of taxes, they are identical to a traditional IRA.

Some employers provide matching funds for their retirement programs. Up to a pre-determined amount, they will put one dollar into your investment account for every dollar that you do. That's free money!

However, your money needs to be invested in a fund approved by your employer. You have less control over the way that your money is invested.

A Roth IRA is taxed differently from these other three investments. It is tax exempt not tax deferred.

Once the money is in your account, it grows tax free. Once you reach retirement age and begin taking distributions, you don't have to pay any taxes either!

The catch is that your contributions are not tax deductible. Instead, you invest money in a Roth IRA after taxes. You pay taxes up front, so you don't have to pay them later.

There are also fewer restrictions on withdrawing your contributions. You can withdraw your contributions without penalty giving you access to your money in case of emergencies. With the other three programs, early withdrawals are subject to steep penalties on top of income taxes.

By paying the tax on your income before investing it, you save yourself money later in life. You will probably have less disposable income after you retire, so it would be easier to pay the taxes before you retire.

So which plan will give you the most money when you retire?

Let's look at an example.

We'll invest $2500 per year. We'll make these contributions each year for 35 years. We'll assume an average return of 7%.

Since both a Roth IRA and a traditional IRA grow tax free, each account will have $345,592.20 in it after 35 years.

With the traditional IRA, you'll owe taxes on any distributions. To get the same amount of income, you'll have to withdraw more money.

Let's assume that we now want to have $2500 per month, after taxes. Our tax rate will be about 15%. That means we'll have to withdraw $30,000 per year from our Roth IRA and about $35,000 from our traditional IRA.

At this rate, the traditional IRA will run out after 16 years and the Roth IRA will run out after 26 years. If we invest the same amount each year, the Roth IRA will provide us with retirement income for much longer.

If you do choose a traditional IRA, you should compensate for this by investing some or all of your tax savings in your account.

So what is the best plan for you?

If your employer matches your investment, you should also contribute to your 401(k) or 403(b) plan. Contribute as much income as your employer will match it's free money!

If your employer doesn't match funds or if you've already invested as much as they will match, you should open up an IRA or a Roth IRA. Both accounts give you more flexibility in investing your income.

If the tax deductions for an IRA would lower your tax bracket today, you should open an IRA. However, remember to spend and save that tax savings wisely.

If a traditional IRA wouldn't save you a considerable amount on taxes, you should open a Roth IRA. You get the most flexibility. You also don't have to worry about taxes when you retire. Why put off until tomorrow what you can pay today?