Understanding Tax-Advantaged Investment Accounts
Learn how to differentiate between "pre-tax," "tax-deferred," "tax-free" and "tax-exempt" accounts.
Overview
When researching retirement and other types of investment accounts, you might see terms like "pre-tax," "tax-deferred," "tax-free" and "tax-exempt" used to describe the tax treatment of certain types of account contributions, earnings and investment products. Understanding these terms can help you make investment decisions based on your personal needs and circumstances.
Here's an introduction to some commonly used terms:
Details
Many employer-sponsored retirement savings accounts--including traditional 401(k), 403(b) and 457(b) plans, as well as Thrift Savings Plan (TSP) accounts--allow you to save for retirement on a tax-deferred basis. Contributions to these accounts are typically made pre-tax, and you won't pay taxes on that money or its earnings (including interest, dividends and capital gains) until you withdraw it from your account, usually after you retire. SEP and SIMPLE plans typically provide similar tax deferral benefits.
Source
Originally published at www.fool.com.