I understand that a Roth IRA offers the benefit of paying taxes up front so that when the investor withdrawals the money at retirement, the funds won't be taxed.

My confusion is that I have yet to see my Roth investment taxed. Here's my scenario:

  1. Fund my Roth IRA account's brokerage site with $1000 from my checking account
  2. Invest in two mutual funds at $500 each
  3. When I look at my statements I see $500 in each fund, gaining growth with the market. The only decrement being fees. There's nothing about taxes.

Part of me expected to see my $1000 immediately reduced by a portion of funds going to the govt in the form of tax. I expected to deposit $1000 and suddenly my account has say $850 (for example) since with Roth you pay tax up front. Why didn't this happen?

Thank you!


The money you invested in your Roth was taxed as income when you filed your income tax.

A Roth contribution is "post-tax" as opposed to a standard IRA or 401k contribution which are "pre-tax". Pre-tax contributions lower your taxable income for the year. In example, you had income of $100,000 and made a standard IRA contribution of $5000. Your taxable income would be $95,000. In the case of a Roth contribution, the same $5000 investment would not reduce your taxable income for the year.


The money in the checking account was already taxed. It was income this year or last, or a gift from somebody, or earned interest that will be taxed.

If it was a deductible IRA you would declare it next April and get a refund from the government.

  • So how would it if it was a traditional IRA and not a Roth IRA? Wouldn't it be the same process?
    – dankeshawn
    Feb 21 '15 at 15:18
  • 1
    @dankeshawn: If it was a traditional IRA (and the contribution was deductible), you would report the IRA contribution on your tax return, reducing your income by the amount of the contribution.
    – BrenBarn
    Feb 21 '15 at 17:34

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