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A tax-free bond or account pays no income taxes on its gains.

Expanded Definition

Typical examples include municipal bonds, Roth IRA and Roth 401(k) accounts. In contrast, IRA, 401(k), 403(b), and 457 accounts and annuities are tax deferred. Their gains pay no Federal income taxes while in the account, but are taxed at ordinary income tax rates when paid out as distributions.

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