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A retirement plan can provide, in addition to retirement income, immediate tax benefits that may lower your current taxable income and help you build assets free from immediate taxation. That's because contributions made to a retirement savings plan may be tax deductible, and earnings can accumulate income tax deferred until they're withdrawn. Withdrawals of earnings are subject to ordinary income tax. In addition, a federal 10 percent penalty may apply to withdrawals taken prior to age 59½.