Assets in an IRA are considered tax-advantaged. Funds in an IRA are not subject to taxes while they are held or invested in the account. This means that any interest, dividends or capital appreciation is also not taxed while the funds are held in the account. Distributions, or withdrawals, from traditional IRAs are treated as ordinary income and taxed accordingly when withdrawn after age 59 ½. For withdrawals before this age, an additional 10% tax is assessed. Investments in a Roth IRA are made with after-tax dollars and are not tax deductible. Federal (and possibly state) income taxes are not due upon distribution of earnings from the account if five years have passed since the first day of the year in which you made your first Roth IRA contribution.