Just the Facts
IRAs are great tax savers because the earnings in your account are tax-deferred until you withdraw them. That means every dollar stays invested—earning you returns—and is never withdrawn to pay taxes.
The special tax features of IRAs make them an entirely different breed of account from regular savings or plain investment accounts. These differences affect when you’ll owe taxes on your account earnings and the tax rate you’ll have to pay. To understand how this works, you need to understand a few tax terms:
• Taxable income These are earnings from your job and from interest or dividends from your investments that you have to pay tax on each year.
• Income tax rate This is the percentage of your income that you’re required to ...