When are earnings on tax-deferred accounts taxed?

Earnings on tax-deferred accounts, such as traditional IRAs and 401(k)s, are taxed when you withdraw funds during retirement or when you take distributions. At that point, the withdrawals are treated as ordinary income and taxed at your current income tax rate. Additionally, if you withdraw funds before reaching age 59½, you may incur a 10% early withdrawal penalty along with income taxes.