Interest, dividends and capital gains accumulate tax deferred in the plan or IRA.
When you start withdrawing money, you'll generally have to pay income tax on the amount you receive at your ordinary tax rate unless you move your savings to another plan or IRA in a qualified rollover.
The portion of withdrawals representing nondeductible or after-tax contributions isn't taxed on distribution.
These include a Roth IRA or a designated Roth 401(k), Roth 403(b) or Roth 457(b) account.
You benefit from deferring taxes on investment earnings and capital gains.
After you've reached age 59½ and had your account for five tax years, qualified distributions - including earnings - are tax free.
Carefully planning your sequence of withdrawals with taxes in mind helps you maximize your savings. It typically makes sense to keep your tax-deferred investments growing for as long as possible. Generally, the preferred sequence of withdrawals is:
Taxable accounts first.
Traditional IRAs and employer plans second.
Roth accounts last.
But this sequence may not always be the most advantageous when you consider these factors:
Because long-term capital gains are taxed at a lower rate than ordinary income, you may not want to withdraw from a taxable account if it would mean selling appreciated securities before you've satisfied the long-term holding period.
You may not want to reach the income level that triggers paying taxes on your Social Security retirement benefits.
If you're deciding whether to take taxable distributions from a tax-deferred account or nontaxable Roth distributions, you may choose to delay the taxable distributions if you expect to be in a significantly lower tax bracket in the future.
Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisers for a prospectus/summary prospectus.
All data provided by Invesco unless otherwise noted.
Invesco Distributors, Inc. is the US distributor for Invesco Ltd.'s retail products. It is a wholly owned, indirect subsidiary of Invesco Ltd.