We all know we should save for retirement, even though study after study shows that most Americans aren't saving enough. But putting money in a checking account rather than a 401(k) not only endangers our retirements -- it also costs us money. Here's how.

More taxes today
Before money makes it from your employer's bank account to your paycheck, Uncle Sam takes a bite. However, you can prevent that by contributing money to traditional retirement plan at work or to a deductible traditional IRA (if you're eligible) since your contributions reduce your taxable income dollar for dollar. Put another way, if you're in the 28% tax bracket, every dollar that doesn't go into a retirement account increases your tax bill by $0.28.

That's if you choose the traditional plan. If you choose a Roth, you don't get a deduction today, but you get tax-free income in retirement. So is the Roth right for you? We put that question to a group of fee-only financial advisors from the Garrett Planning Network, who are offering a limited-time discount to Fool readers. Here's what they had to say.

More taxes tomorrow
Capital gains, interest, and dividends on investments in non-retirement accounts get taxed in the year you receive them. Not only does this increase your tax bill year after year, but it leaves less money behind to make more money.

However, the money in a 401(k) or IRA grows tax-deferred, which means you don't pay taxes on that money until you make withdrawals in retirement. If you have a Roth retirement account, you won't ever pay taxes on the growth.

You don't get the employer match
Picture this: Your boss (or the CEO of your intergalactic megalo-conglomerate) is holding out $25 to you -- all you have to do is make sure $100 from your next paycheck goes into the company retirement plan. That's right. If your employer offers a 25% match on retirement contributions, she's essentially offering to pay you to save. For every $100 you don't contribute to the plan, you leave $25 of bonus pay in your boss' pocket (and even more if your company matches 50% on the dollar).

Let's tie all this together in one tidy example to see how utilizing retirement accounts can do more for an investor than improve his post-employment prospects. How much could a hypothetical investor with a tax rate of 28% save by contributing 10 grand to a traditional retirement account?

Retirement Savings Bonus


Tax savings realized by contributing $10,000 to a 401(k)


Company match (25%)


Tax savings from tax-deferred growth (assuming 5% return)  




For this fictional fellow, contributing $10,000 to a 401(k) increased his net worth by an additional $5,440. This doesn't even consider myriad other variables, such as state income tax savings and more money to compound through the years. Even if someone doesn't receive an employer match, the tax savings are compelling.

In case these numbers have caused you to realize that the plan at your place of employment is sub-par -- perhaps because it doesn't offer a match, or doesn't offer a plan at all -- here's a list from the companies with the top 10 401(k)s, according to a BusinessWeek analysis:

  1. Saudi Arabian Oil
  2. Bank of New York Mellon (NYSE: BK)
  3. Greenwich Capital Markets
  4. Southwest Airlines (NYSE: LUV)
  5. Piper Jaffray (NYSE: PJC)
  6. Nucor (NYSE: NUE)
  7. FedEx (NYSE: FDX)
  8. Amgen (Nasdaq: AMGN)
  9. McDermott Will & Emery
  10. Chevron (NYSE: CVX)

If you need a little professional help making the most of your retirement plans -- whether it's choosing the right type of account or the right investments to put in it -- visit the Locate an Advisor area of the Garrett Planning Network website. For a limited time, advisors with a Motley Fool logo next to their names are offering a 10% discount to Fool readers.

Robert Brokamp is a Certified Financial Planner and the lead advisor for The Motley Fool's Rule Your Retirement service. FedEx is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is the best deal you'll find.