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I'm curious, does transferring money into a retirement fund affect tax liability? I should have done it earlier, but I just started putting money into a 401k plan.

The devil is in the details.

Making pre-tax 401(k) contributions reduce your current income taxes because every dollar you put in the 401(k) reduces your current taxable income (reduces W-2, Box 1). However, when you start taking money out of the 401(k) in retirement, it will be counted then as ordinary income.

Likewise, deductible contributions to a Traditional IRA reduce your current income taxes (again, taxable when the money comes out). You should check if you can make deductible contributions to a Traditional IRA before actually contributing; generally, if you cannot deduct contributions to a Traditional IRA but you are able to contribute to a Roth IRA, Roth IRA contributions are more valuable than non-deductible contributions to a Traditional IRA. See IRS Publication 590.

But non-deductible contributions to a Traditional IRA or contributions to a Roth IRA do not affect your current income taxes. All withdrawals from a Traditional IRA, except for the part corresponding to non-deductible contributions, would be taxed when the money comes out in retirement. However, all withdrawals from a Roth IRA, as long as you follow the appropriate rules, are tax free (e.g., had a Roth IRA for at least 5 years and the withdrawal takes place after one has turned 59.5 years old).

I am contributing up to my legal limit to my 403(b) (think of this as roughly the non-profit equivalent of a 401(k)--I work for a community college and we don't have a 401(k) available to us) so my current taxes are far less than they could be (but will be paid in retirement as I withdraw those funds at that time). I and likewise I am contributing up to my legal limit into my Roth IRA, which doesn't affect current taxes but, at least under current law, would be tax free when I retire. A couple years ago I did some restructuring of my portfolio so the taxable investments are more tax friendly than they were three years ago, plus when I did that I ended up realizing a good chunk of capital losses that are reducing taxable income at a tune of $3,000/yr until the capital losses are used up against capital gains (which I should be realizing just a little each year) and up to $3,000/yr of income. Plus living in a relatively high income tax state (9% state marginal tax rate), paying mortgage interest and property tax on my principal residence and making 501(c)(3) contributions to causes I believe in add up on Schedule A so that helps the tax bite.
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