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Three Types of Taxation

Modify your thinking from the type of account to type of taxation. Every account you have can fall into 3 types of taxation: taxable, tax-deferred, or tax-free.

Taxable

  • Individual bank & brokerage accounts
  • Joint bank & brokerage accounts
  • Trust bank & brokerage accounts

Tax Deferred

  • Traditional IRAs
    • Deducted annual contributions
    • Earnings
    • Rolled over employer plans (401(k), etc.)
  • Pretax balance of employer plans
    • 401(k)
    • 457
    • 403(b)
    • SEP
    • SIMPLE
    • All company contributions
      • Match
      • Profit sharing

Tax Free

  • Roth IRAs
    • All contributions and conversions to Roth IRA (any new money on which you have already paid tax)
    • Earnings within Roth IRA after the end of a five-year waiting period from first contribution (or at least age 59½, become disabled, or die)
  • After-tax balance of employer plans
    • After-tax employee contributions to 401(k), 403(b), or 457
    • Roth employee contributions to 401(k), 403(b), or 457
    • Earnings on Roth contributions to 401(k), 403(b), or 457 after the end of a five-year waiting period from first contribution (or at least age 59½, become disabled, or die)

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