• Tax-deferred accounts provide an immediate tax benefit for the investor. Contributions to these accounts aren’t subject to income taxes. Depending on the type of account, either your contributions are withheld from your paycheck before taxes or you can deduct your contributions when you file your income tax return.

• In fact, you won’t pay taxes on the money in your tax-deferred accounts until you withdraw it, usually during retirement. When that day comes, you’ll pay income taxes on your distributions. But if you meet the distribution requirements for the particular type of account, you won’t be on the hook for any additional taxes or penalties.

Simply put, tax-free investing refers to any investment in which the interest, dividends, or capital gains are exempted from federal, state, or local taxes. This type of investment can be a powerful tool in your wealth-building arsenal, helping to maximize returns and minimize the impact of taxes on your overall financial picture.