THE NEW HOLISTIC RETIREMENT • 51 your taxable income. The money in tax- deferred account s is tax ed w hen you access t he funds in retirement, 25 meaning you pay taxes in the future on both your contributions and all the associated growth of funds in the a ccount . • Tax-Free Accounts: Tax- free account s a re rising in popularity. 26 These accounts, which include Roth 401(k)s and Roth IRAs, are taxed differently fro m tax- deferred account s. I n tax-free accounts, you make contributions with after- tax dollars. That means, if you contribute $6 ,000 to a Roth IR A this year, you’ll have to pay taxes on those funds before contributing them. However, once funds are i n the acco unt, the y are no t taxed again. 27 In the futu re, w hen you a ccess tax- free fu nds, no additional tax i s d ue on th e c ontributions o r as sociated gr owth . • Taxable Accounts: These accounts are ofte n used for funds above and beyond wh at c an be contributed to a tax- deferred or tax- free account . M oney in t hese account s, w hich ca n incl ude a brokera ge or sa vings account , is tax ed ea ch year th at your acco unt sees capi tal gains . Ga ins in a savings account, for example, are taxed every year. 25 Withdrawals from these accounts before age 59-1/ 2 are also subject to an additional 10% federal penalty. 26 Mallika Mitra. Money. June 4, 2020. “Roth IRA Conversions Are Surging. Here’s Why This Retirement Savings Strategy is So Popular Right Now.” https://money.com/traditional-vs-roth-ira-conversion 27 Roth IR A distributions are tax free once you reach age 59-1/ 2 a nd the account has bee n ope n for at least 5 years.
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