Some ideas are so simple, we don't grasp their full power and implications.

The best example is the incredible power and lifetime benefit of tax deferred investment growth.

In recent months dozens of readers have written asking about the "excess withdrawals" penalty tax on qualified plans, wondering if they should stop making contributions. Most people will never be so fortunate as to have that problem… but they are still worrying about it. Everyone hates income taxes so much the mere thought of a tax bill that has to be paid 20, 30, or 50 years in the future obliterates the pleasure and benefit of avoiding a tax today.

So lets take a careful look at what we really have in a tax deferred savings plan such as a 401k, 403b, or other qualified plan.

Every dollar you save is tax deferred. If you put in $100 a month and are in the 28 percent tax bracket, that means you really have two sums working for you, $72 of after-tax money that belongs to you and $28 of tax liability that will eventually belong to the federal government.

The important word here is "eventually."

Until "eventually" arrives, every tax liability dollar is working for you to accumulate still more in the account. Every one of those additional dollars earned is also taxable but they continue to earn and compound. The longer the time period, the greater the accumulation.

Suppose, for instance, that you saved $1200 a year and earned an average return of 10 percent a year. You would have about $7,962 in 5 years; $20,081 in 10; $72,166 in 20; $207,262 in 30; and $557,667 in 40. You accumulated that $557,667 by putting aside a total of only $48,000, of which only $34,560 came directly out of your pocket. The remainder accumulated inside the tax deferred account.

If you removed all of that $557,667 from the account at once you would have a very large tax bill. No one, however, takes money out of retirement accounts all at once. We take the money out just like we put it in: slowly, over a long period of time. As a result, our "tax account"--- the money we will eventually have to pay in taxes, works to multiply our investment income in retirement, just as it helped the account grow while we were saving.

Think of it this way: if you retire with $100,000 in a tax deferred retirement account, were in the 28 percent tax bracket while accumulating the money, and remain in that bracket in retirement, you basically have TWO accounts: your after-tax account of $72,000 and your tax liability account of $28,000.

Both earn annual income for you. The government doesn't come in an say, "Hey, that's our money earning money for you!" They let us reinvest the money if we want. Or spend it. Only when we spend it do we need to pay taxes.

For every seventy two cents of after-tax money that is working and earning for you, another twenty eight cents of tax money is also working. Basically, your annual income from your tax deferred account will be nearly 40 percent larger because of the accumulated tax account. You get to collect income earned by your unpaid tax bill. You also get to spend most of that income, sharing only 28 percent with the government.

Similarly, if you have money in a tax deferred account and name your spouse as your beneficiary, it is NOT subject to an immediate estate tax. The account is transferred to your spouse and the tax deferral continues through the lifetime of the surviving spouse. For reasons that escape me entirely, many people worry unduly about the final taxation of these accounts, constantly searching for the half empty glass.

The important fact is not that taxes eventually have to be paid or that after age 70  ½ plan participants must make withdrawals related to their life expectancy. The important fact is that a couple can accumulate assets and enjoy the earning power of what they might have paid in taxes through their entire combined lifetime plus five years AFTER the last survivor has died.

That's a long, long time to defer paying taxes. I call that a glass that is at least half full.