Tax Deferral

Tax deferral is a tax status that can be applied to certain account types or investment products. When a tax-deferred investment grows, the investor does not have to pay capital gains taxes on that growth every year. In other words, the taxes are deferred until the funds are withdrawn. This deferral allows the growth to compound on itself over time instead of having to pay a portion of gains to the IRS in the form of a tax.

The tax deferral strategy can benefit a financial plan by allowing the taxes to accrue while the investor would typically be in a higher tax bracket in their working years. When the investor withdraws and uses the funds in retirement, the idea is that he or she would be in a much lower tax bracket and save overall on their investment taxes. Tax deferral is available on a variety of employer-sponsored qualified plans (such as 401(k)s and 403(b)s), IRAs and non-qualified variable and fixed annuities.

If you have questions about what portions of your current plan is tax-deferred, or would like to see how a focus on tax-deferral could benefit your current and future taxation, consult a Trilogy Adviser.

Tags: Tax Management
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