How retirement savings can be taxed

How are retirement savings taxed?

The money you save for retirement is usually taxed in one of three ways:

  • Tax-deferred - instead of paying federal income taxes when contributions are made, you pay them when you start taking withdrawals. Assuming no withdrawals are made until you retire, you may be in a lower tax bracket when the taxes are eventually paid.

  • Roth (After-tax) - you pay taxes on the contributions when you make them, and might be able to later withdraw both the contributions and the earnings on those contributions tax-free, if certain conditions are met

It’s always a good idea to consult with your tax professional for answers to your specific tax questions.