What is a common feature of retirement accounts?

Retirement accounts are primarily designed to help individuals save for retirement while providing specific incentives that promote long-term saving. One of the most significant features of these accounts is that they often come with tax advantages. This can take the form of tax-deferral on investment growth, meaning that individuals do not pay taxes on interest, dividends, or capital gains earned within the account until they withdraw funds during retirement. Alternatively, accounts like Roth IRAs allow for contributions with after-tax dollars, enabling tax-free withdrawals in retirement.

These tax benefits encourage people to contribute to their retirement savings, as they can significantly enhance the growth of their investments over time. Additionally, because these accounts are specifically geared toward retirement, the associated tax incentives aim to bolster individuals' financial security during their later years, making them a crucial component of personal finance strategy.