Understanding Tax Consequences on Retirement Accounts

On today’s episode, we are breaking down the tax consequences on various retirement accounts. Tax consequences are one reason retirement planning can be so difficult, leaving many people confused about which accounts best fit their needs. So we break down each account type and the impacts they could have on your finances.

Tax-deferred accounts like a 401(k) or IRA, allow you to postpone your tax bill until you withdraw that money. But you have to be aware of what you’ll owe in retirement. In contrast, a tax-free account like a Roth IRA allows for qualified tax-free withdrawals if you meet certain conditions. Taxable accounts come in the form of securities or stocks. You can sell your investments at any time without penalty, but you are going to owe taxes. We encourage clients to have a plan that strategically uses each of these accounts, allowing for a diversified tax plan in retirement.