Tax savings give IRAs, 401(k)s an edge

USA TODAY markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com

Q: Do you have to use retirement accounts to save for retirement?

A: IRA. 401(k). Roth. These are the types of retirement accounts many beginning investors know are important, but may not completely understand.

The fact is, no, you don't need to use any of these retirement accounts to save for retirement. It's just these special accounts make it a whole lot easier to accumulate a nest egg if you take the time to understand what they are.

The standard brokerage account, technically, would work fine for people looking to save for retirement. And traditional brokerage accounts have their benefit in that you can take the money out whenever you want and for whatever reason without paying a penalty.

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But standard brokerage accounts are taxable for most people. That means every dividend and every capital gain is a taxable event, which means more money for Uncle Sam and less for you in retirement.

Retirement accounts are intended to give people a break when saving for retirement. Depending on the type of account, there can be enormous tax benefits to using these accounts.

Roth IRAs, for instance, allow you to contribute already-taxed money and allow it to compound for decades and withdraw tax free.

Retirement accounts have their downsides, including fees for taking out money for non-retirement purposes, but they're still absolutely worth the risk.