Tax-deferred savings programs like individual retirement accounts and 401(k) plans have benefited millions of Americans, but there are some wrong notions regarding those plans which should be made clear. For example, the IRAs and 401(k) plans simply delay the paying of taxes and don't allow users to avoid them altogether.

The plans do have some tax benefits but when the money is withdrawn after retirement, the taxpayer is responsible for income taxes on the withdrawals. 

The account must have been opened for five years or the holder must be at least age 59½, for tax-free withdrawals of earnings in a Roth.

People usually assume that they will be in a lower tax bracket after retirement.

While most of the investors do not see a drop in their income taxes once they retire and sometimes they see an increase in the same. Besides including a pension and retirement fund distributions, retirement income will also include an important Social Security payment.

Hence, working Americans should be putting retirement savings in a Roth IRA or Roth 401(k) plan, rather than a traditional plan.

Under a Roth plan, a person contributes after-tax dollars to an account and there is no deduction for the current-year taxes.