5 Types Of Retirement Income And How They're Taxed

Roth IRAs

A Roth individual retirement account (IRA) is perhaps the exact opposite of a 401(k). Whereas all contributions to a 401(k) are pretax dollars, all contributions to a Roth IRA are post-tax dollars. Retirees are allowed to begin withdrawing from this account as early as fifty-nine and a half years old. Because taxes have already been paid on the contributions to this tax shelter, there are no taxes on any withdrawals during retirement. This can potentially hedge against the risk that tax rates will be much further in the future during your retirement than they currently are today. Many retirees enjoy this type of account because no taxes must be accounted for when making qualified withdrawals.

Continue to learn about savings and money market accounts.