Retirement plan contributions are usually made with before-tax dollars so Federal income taxes are deferred until you begin taking withdrawals later on. No taxes are due on pre-tax contributions and earnings made until the money is withdrawn, but because these plans are intended primarily for retirement, you can generally withdraw funds only after termination of employment. If you withdraw funds before age 59 1/2, they may be subject to an additional 10% early-withdrawal penalty. In limited instances when you are making contributions to your retirement plan with after-tax dollars, you will not have to pay income tax on your principal. However, when monies are withdrawn, taxes may be applicable to any earnings and interest accrued. For additional information and guidance, contact your tax advisor.