An IRA is a valuable part of your investment strategy because it allows all of your investment earnings to accumulate free of current taxes. And that can make a big difference in how your money grows over time.

This chart compares the growth of two hypothetical investments, one taxable and the other tax-deferred. Each has annual contributions of $2,000 for 30 years and assumes an 8% annual rate of return. The earnings for the taxable investment are subject to a combined federal and state tax rate of 35%.

As you can see, within just 10 years, the tax-deferred IRA begins to grow more quickly than the taxable investment. In 30 years, the IRA account is worth over $100,000 more than the taxable account.

Tax-Deferred Compounding Makes Your Money Work Harder for You

Taxable Investment

Tax-Deferred IRA

The above chart, prepared by Pioneer, is only for illustration, and does not imply or assure the performance of any investment.

With a Traditional IRA, earnings are taxed when withdrawn. Contributions are also subject to tax if they were tax-deductible when made. With a Roth IRA, contributions are withdrawn tax-free at anytime and earnings are also tax-free when withdrawn if they satisfy a 5-year waiting period and the account owner is over age 59½, disabled, deceased, or uses up to $10,000 to buy a first home. Earnings withdrawn prior to meeting these conditions are taxable and may be subject to a 10% penalty.

For either IRA, the taxable portion of any withdrawal before age 59½ may be subject to an additional 10% penalty tax, unless an exception applies.

This material is not intended to replace the advice of a qualified attorney, tax advisor, investment professional, or insurance agent. Before making any financial commitment regarding the issues discussed here, consult with the appropriate professional advisor.

The degree of risk in the investment’s assumed rate of return, including a statement that the assumed rate of return is not guaranteed;

• The possible effects of investment losses on the relative advantage of the taxable versus the tax-deferred investment’s return.
• The extent to which tax rates on capital gains and dividends would affect the taxable investment’s return.
• The fact that ordinary income tax rates will apply to withdrawals from a tax-deferred investment;
• Its underlying assumptions;
• That an investor should consider his or her current and anticipated investment horizon and income tax bracket when making an investment decision, as the illustration may not reflect these factors.