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How do taxes on investments change if I invest through a retirement account?

Curious about Taxes Investment

How do taxes on investments change if I invest through a retirement account?

Investing through a retirement account can offer certain tax advantages, depending on the type of account. Here are a few examples:

1. Traditional IRA: Contributions to a traditional IRA are taxdeductible in the year they are made, and earnings grow taxdeferred until withdrawn. When withdrawals are made in retirement, they are subject to ordinary income tax rates.

2. Roth IRA: Contributions to a Roth IRA are made with aftertax dollars, but earnings grow taxfree. Withdrawals in retirement are generally taxfree, as long as certain conditions are met.

3. 401(k) or similar plan: Contributions to a 401(k) or other employersponsored retirement plan are made with pretax dollars, and earnings grow taxdeferred until withdrawn. Withdrawals in retirement are subject to ordinary income tax rates.

4. Health Savings Account (HSA): Contributions to an HSA are taxdeductible, and earnings grow taxfree. Withdrawals for qualified medical expenses are taxfree, and withdrawals for nonmedical expenses are subject to ordinary income tax rates (plus a 20% penalty if taken before age 65).

Keep in mind that there are contribution limits and other rules that apply to each type of retirement account. It's important to consult with a tax professional or financial advisor to determine the best retirement savings strategy for your individual situation.

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