How Saving for Retirement Can Lead to a Lower Tax Bill

Posted on January 30, 2026 by

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By Empower Retirement

Raise your hand if you like paying taxes. Anyone? (Insert cricket sounds here.) It’s safe to say that not many people look forward to the annual ritual of filing and paying income taxes. It’s confusing. It’s stressful. And when you don’t get a refund and have to write the IRS a check, it can be financially uncomfortable. But what if there was a way you could lower your tax obligation — and by doing so, create a more comfortable financial future for yourself and your family? And what if it was all completely legal?

It may come as a surprise that your County of Henrico 457 Deferred Compensation Plan does exactly that. It offers a tax-advantaged way to save — one that may provide you with a bigger retirement nest egg than you would achieve by saving and investing on your own.

The traditional way

With traditional pre-tax contributions, the money you contribute to your account comes out of your paycheck before taxes are calculated and deducted. So, you potentially lower your tax obligations because you pay taxes on a smaller take-home amount. Also, the taxes you would have paid on the amount contributed are invested in the way you choose. And you don’t pay any taxes on the earnings your contributions generate until you take a qualified distribution in retirement. Because some people expect to be in a lower tax bracket when they retire, this can help reduce their overall tax burden.

The Roth way

Roth contributions are still tax-advantaged, but the advantage comes into play later. Roth contributions come out of your paycheck after taxes are calculated and deducted. So, you don’t get a tax break initially — but you don’t owe taxes when you take a qualified distribution in retirement. And even when your contributions have generated gains, you won’t owe taxes on those gains.¹

And don’t forget the saver’s credit

The IRS’s Retirement Savings Contributions Credit is a tax credit for making eligible contributions to an employer-sponsored retirement plan or IRA. In 2025, the credit helped offset part of the first $2,000 that an eligible person contributed to their retirement account during the year. Those who were eligible and who contributed at least $2,000 to their accounts could claim a credit of 50%, 20%, or 10%, depending on their adjusted gross income — which would translate into a $1,000, $400, or $100 credit, respectively. To be eligible, your adjusted gross income must fall within the range established by the IRS. Visit irs.gov for more information. It’s also a good idea to consult a qualified tax professional.

If you’re interested in saving more for your retirement and lowering your tax, schedule a meeting with Chip Richardson, our Henrico Retirement Plan Advisor, check out the resources and information on the employee website’s Deferred Compensation webpage, or log in on the Empower websiteand consider increasing your contributions to your County of Henrico 457 Deferred Compensation Plan. It can make your future more comfortable while making tax season a little less stressful. What’s not to like?

^{1 A withdrawal from a Roth account is not subject to federal taxation as long as it is qualified as defined under IRS regulations. However, state and local taxes may still apply. Any earnings on Roth contributions will be taxed unless a withdrawal is a qualified distribution as defined by the IRS. For a withdrawal to be considered a qualified distribution, Roth contributions must have been in the account for at least five years and the money withdrawn after age 59½, death, or disability. Current rules are subject to change.}

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