Tax Treatment of Investment and Retirement Accounts

Post-Tax accounts, both retirement accounts and non-retirement investments, provide the best shelter from taxes.

We have classified various investment and retirement accounts based on their tax treatment. The tax treatment differs between new contributions made to the account, growth from investments and money taken out in the form of a withdrawal or distribution. Withdrawals after age 59.5 are generally considered a qualified distribution from tax-advantaged retirement accounts. A penalty of 10% is assessed on top of other tax liabilities for non-qualified distributions.

Taxable: These are your regular bank and brokerage accounts where the contributions are made from after tax money, and any realized gain from the investment is taxed during the same tax year. Money can be taken out for any purpose without any further tax consequence.

Tax-Deferred: These account types such as After-Tax 401k and Annuities are not very common. Just as in Taxable accounts, money goes in post-tax, but grows tax-free. However, tax is owed on the interest earned (or realized gains) but not on the principal or contribution amount when money is finally withdrawn. The contribution limit for an After-Tax 401k is quite high at $57K and can be effectively used to beef up Post-Tax assets. Refer to “How to Move Asset Between Tax Buckets” article for more information on this topic.

Pre-Tax: Perhaps the most popular of all retirement accounts, a regular 401k is a Pre-Tax account. Contributions made are pre-tax and enjoy an immediate tax deduction. Money grows tax deferred but all the monies (both principal and interest) are taxed when taken out during retirement.

Post-Tax: The Roth IRA is an example of Post-Tax account. Money goes into after tax, grows tax-free and can be taken out tax-free as well. Even though both Pre-Tax and Post-Tax accounts provide the same level of tax benefit by design, Post-Tax accounts encourage more savings by not fragmenting the savings between Taxable and Pre-Tax accounts. You can find more details about their respective performances in “Performance Comparison of Retirement Savings Buckets.”

We specialize in tax-free retirement strategy and investments such as IUL, Annuity and LTC. Prefer a quick and complimentary consultation? Just email us at

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