Taxable vs. Pre-Tax Accounts

Taxable vs pre-tax accounts

Taxable vs. Pre-Tax Accounts

What is the Money Date? A weekly time to check in. 3 things we review and update: 
1. Spending 
2. Earning
 3. Savings

After Tax or Taxable Accounts

You earn money, you pay taxes and you save that money in an account. It can be a savings account, investment account.

The original investment is your principal. You pay taxes on the gain above and beyond that. Or get to deduct losses below that amount. You get return in form of qualified dividends and capital gains, which are taxed at the federal and state level. You receive a form called 1099 that shows you (and the IRS) how much investment “income” you need to report.

After-tax dollars can be invested in just about anything: CD’s, savings accounts, mutual funds, stocks, bonds, real estate, annuities, and much more.

Pre-Tax Accounts

Your typical 401k, 403b, Simple IRA, SEP, TPS or traditional IRA accounts.

You fund these accounts thru contributions either by you or your employer.

For example, if your taxable income was going to be $40,000 and you put $2,000 in a pre-tax account like a deductible IRA, then your reported taxable income for that year would be $38,000. The IRS rules allow you and/or your employer to put in only a certain amount (which varies by the type of account) into these pre-tax vehicles each year.

The funds inside these accounts grow and are not taxes until you take distributions in retirement. You won’t get a 1099 form every year for these accounts. You can invest in a lot of options, such as stocks, bonds, mutual funds.


Anna Sergunina
Anna Sergunina

I'm Anna Sergunina, CFP®, President & CEO at MainStreet Financial Planning, Inc. My passion lies in serving others through financial planning, helping clients achieve their dreams like buying a home, saving for education, or retiring early. With over two decades in the industry and a CFP designation since 2009, I'm dedicated to excellence and continuous growth. Beyond work, I cherish moments with my son Liam, prioritize self-care, and engage in content creation for my Money Boss Parent Podcast and Money Library blog.

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