These strategies can reduce the taxes you will pay on retirement accounts

Given an investor who invests $10,000 each year and his tax rate is 20%.

He will not pay taxes on the $10,000 which is $2000. If he did not invest $10,000 he would have paid $2,000 in taxes. The IRS is essentially giving you back $2000. What is the cost of investing $10,000? $8,000 from you and $2,000 in tax reduction from the IRS. Your out of pocket expense is $8,000 to invest $10,000.