YOUR TAX TIMELINE
Divide up your retirement savings into these three types of accounts.
Taxable accounts are simple savings and brokerage accounts, which report any income you’ve received over the course of the year to tax authorities. You pay tax on dividend and capital gains income in the year that you receive it.
Tax-deferred accounts are those set up within a qualified retirement plan, including 401(k) and 403(b) plans, as well as traditional and SEP-IRAs. Contributions to these accounts are tax-deductible when they are made, and no tax is due on accrued earnings in an account until the money is withdrawn at retirement.
Tax-free accounts are Roth IRAs and Roth 401(k)s, which do not allow you to claim deductions for your contributions. But when the money is used for retirement, withdrawals are generally exempt from tax.