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Retirement accounts offer tax incentives to help you save money on your tax bill and grow your investment accounts.
Heres everything you should probably know:
What Are Tax-Deferred Accounts?
Tax-deferred accounts allow you to save on taxes now deferring your tax bill until a later date.
When you contribute to a tax-deferred retirement account, the money you put in does not count as income.
Money invested inside atax-deferred retirement accountalso does not generate any capital gains or income tax.
The investments are allowed to grow tax-free until you start making withdrawals in retirement.
Both 401(k) and IRA accounts allow you to start withdrawing funds penalty-free at age 59.5.
What Are Tax-Exempt Accounts?
The two most popular tax-exempt accounts are the Roth 401(k) and Roth IRA.
Money invested inside a tax-exempt retirement account doesnt incur any capital gains or income taxes from earnings.
This allows you to lower your taxes now (while they are expensive) and save for the future.
Because the Roth-IRA is a tax-exempt account, youve already paid income taxes before you contributed.
Overall, investing in any kind oftax-advantaged retirement accountis a win.
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