With a taxable account, you’ll likely need to pay federal taxes and potentially state taxes on your earnings. Taxable events can happen in any year, depending on your investments and actions. The tax impact is not limited to when you withdraw money from the account. Tax-deferred accounts typically give you a tax deduction when you contribute to the accounts. Earnings on your investments are tax-deferred until you withdraw them. The total withdrawal amount is usually subject to applicable state and federal ordinary income taxes when withdrawn. You may be subject to early withdrawal penalties for withdrawing the funds before the proper age.