401(k) contributions

When you make contributions to your 401(k) retirement plan on a pretax basis, it means the dollars you put into that account go in before they've been taxed. In effect, your pretax contributions lower your adjusted gross income for income tax purposes. Post-tax contributions, on the other hand, are made with funds that have already been taxed as income. In both cases, money once in the plan will not be taxed for interest, dividends or capital gains.

With a pretax account, when you reach retirement age, the distributions you take from your account will be taxed as ordinary income. Post-tax plans are tax free when you withdraw the money.

Bill Losey, a financial planner in suburban Buffalo, N.Y., suggests investing asmuch money on a pretax basis as possible. "You should max out your 401 (k) on a pretax basis if you can," Losey says. Depending on your tax bracket, Losey says you could save as much as 10% to 30% on every dollar paid into the account. In addition, the compounding effect of having a larger sum of money invested over the years will mean a bigger nest egg when you retire.