Retirement accounts such as 401(k)s, 403(b)s and traditional IRA accounts are tax-deferred. This means that all money that is contributed to the retirement account is done so before any taxes are paid. This is the reason why your W2 can show a lower gross income amount. The money was placed into the tax-deferred account for retirement before taxes were calculated and deducted. Your federal and state taxes are based on your adjusted gross income, known as AIG. By making use of these tax-deferred retirement accounts, your AIG can be reduced.
As far as the simple IRA is concerned you first of all must be less than seventy and a half years of age at the end of the tax year to qualify for it and any IRA tax reduction related to it. Another thing you must have when related to a simple IRA is taxable compensation. What taxable compensation is includes, salaries, commissions, alimony, maintenance or any other income you earn personally. This excludes any rental property, annuity or deferred compensations. As long as you meet these requirements you can easily take advantage of any deduction related to a simple IRA.
You can invest the funds in the Roth IRA in many ways, including mutual funds, certificates of deposit and money market accounts. Individuals are allowed to have more than one retirement savings account. While you can only have one Roth IRA, you can take part in a 401(k) plan offered by your company. Utilizing multiple retirement accounts will help you save even more for those retirement years ahead. It is always best to make the maximum allowed contributions to your Roth IRA account. These contributions will be greatly appreciated upon retirement when you will have a tax-free source of income.