Whats the difference between taxable, tax-deferred and tax-free investing?
A taxable investment is one in which you pay taxes every year on the dividends, interest and appreciation of investments that you sell. A simple example of a taxable investment is a regular savings account. Every year when you file your tax return, you’re required to report the interest your savings account has earned and pay taxes on it. Any time you buy a stock, bond, mutual fund, money market account, etc. that isn’t part of a special tax-sheltered account (such as a 401(k), 403(b), IRA, etc.), it’s most likely a taxable investment — and you’ll be required to pay taxes on its earnings every year. A tax-deferred investment is one in which you do not have to pay taxes on the investment’s earnings until you withdraw money from the account. Examples of tax-deferred investments include 401(k), 457 and 403(b) plans, and IRAs. In many cases, contributions you make to tax-deferred accounts are partially, if not completely, tax deductible. Because tax-deferred accounts are designed to help
