Knowledge Center

Taxes

Tax Deferral

Investing in tax-favored retirement accounts allows you to diversify your tax responsibilities the same way you diversify your investment holdings.

Some retirement accounts allow you to postpone paying taxes on your earnings. These accounts, such as traditional individual retirement accounts (IRAs) and Simplified Employee Pension Plans (SEP IRAs), allow you to make pre-tax contributions. Your money grows tax-free until you finally withdraw it, at which time it is taxed as regular income.

With other accounts, such as Roth IRAs and Roth 401(k)s, your contributions are taken after-tax, but then you are allowed to withdraw your money in retirement tax-free.

Because these plans are intended to encourage investing for retirement, there are generally penalties, in addition to whatever taxes you might owe, for withdrawing money before age 59 1/2. There is also typically a cap, or limit, to the amount you may invest in an IRA or SEP IRA each year.

For more information about IRA contributions and withdrawals, visit the Knowledge Center.

Scottrade does not provide tax advice. The material provided in this article is for informational purposes only and Scottrade is not responsible for any errors or omissions. Contribution and income limits are subject to change without notice. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.

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The information and content provided in the Scottrade® Knowledge Center is for informational and/or educational purposes only. The information presented or discussed is not, and should not be considered, a recommendation or an offer of, or solicitation of an offer by, Scottrade or its affiliates to buy, sell or hold any security or other financial product or an endorsement or affirmation of any specific investment strategy. You are fully responsible for your investment decisions. Your choice to engage in a particular investment or investment strategy should be based solely on your own research and evaluation of the risks involved, your financial circumstances and your investment objectives. Scottrade, Inc. and its affiliates are not offering or providing, and will not offer or provide, any advice, opinion or recommendation of the suitability, value or profitability of any particular investment or investment strategy.