The return on any investment is influenced by your federal, state, and local tax situation. Investment earnings may be:
- Taxable – Taxes paid yearly on interest, dividends and annual capital gain distributions from investments.
- Tax-deferred – Taxes on earnings are deferred until withdrawal. Tax-deferred earnings include contributions and returns associated with IRAs, 401(k)s, and other retirement saving plans (see Unit 7 of Investing for Your Future Learning Lesson).
- Tax-exempt – Earnings are wholly or partly free from taxes. Roth IRAs