Tax-Deferred Savings Plan

AAA

DEFINITION of 'Tax-Deferred Savings Plan'

A savings plan or account that is registered with the government and provides deferral of tax obligations. Tax-deferred savings plans may defer taxable income earned within the account either until withdrawal or until a particular date.

They are used most commonly in retirement savings accounts such as IRAs, 401(k)s and RRSPs, but are also available for education savings plans and other accounts.

INVESTOPEDIA EXPLAINS 'Tax-Deferred Savings Plan'

In Canada, the Registered Retirement Savings Plan (RRSP) is an example of a tax-deferred savings plan. The RRSP shelters what would normally be taxable income earned within the account until withdrawal. All profits within the account, including interest, dividends and capital gains, are taxed as income only upon withdrawal.

Essentially, tax-deferred savings plans allow you to use the taxes which would have gone to the government for investing. In the end, the taxes are paid, but not before the funds were used to make more money.

RELATED TERMS
  1. Tax Free

    Tax free refers to certain types of goods and/or financial products ...
  2. Registered Education Savings Plan ...

    A savings plan sponsored by the Canadian government that encourages ...
  3. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  4. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  5. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  6. Registered Retirement Savings Plan ...

    A legal trust registered with the Canada Revenue Agency and used ...
RELATED FAQS
  1. How do gains from my 401(k) figure into my taxable income?

    Capital gains from a 401(k) account figure into taxable income in that capital gains are taxed at the ordinary income rate ... Read Full Answer >>
  2. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  3. How much will an employer generally contribute to a 401(a) plan?

    The amount an employer contributes to an employee's 401(a) retirement savings plan can vary from plan to plan. 401(a) plans ... Read Full Answer >>
  4. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  5. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
  6. What types of investments are allowed in a provident fund?

    Different provident funds have different investment rules and restrictions. The allowable investments in an Indian provident ... Read Full Answer >>
Related Articles
  1. Taxes

    Distribution Rules For Inherited Retirement Plan Assets

    If you've recently inherited a retirement plan, you must get to know the rules for distributing the funds.
  2. Insurance

    Investing In Your Child's Education

    Overwhelmed by increasing tuition costs for your kids? The U.S. government can help.
  3. Retirement

    3 Deadlines For Retirement Plan Beneficiaries

    To take full advantage of new RMD regulations, beneficiaries need to take action before important deadlines.
  4. Budgeting

    Managing Income During Retirement

    Learn some sensible strategies for making your hard-earned savings last for as long as you need them.
  5. Savings

    Tax-Saving Tips For Canadian Taxpayers

    Find out how to get a bigger return.
  6. Taxes

    Retirement Savings: Tax-Deferred Or Tax-Exempt?

    There advantages and disadvantages to both types of savings accounts. Find out which one is right for you.
  7. Retirement

    Lazy Portfolio Strategies For Your RRSP

    Check out this cheap and easy way to secure good returns for the long term.
  8. Options & Futures

    Invest In Your Education With An RESP

    All Canadians should know the benefits of these flexible education savings plans.
  9. Retirement

    Maxing Out Your RRSP (Canadian)

    Increasing your savings will provide tax benefits - and peace of mind.
  10. Taxes

    Registered Retirement Savings Plans (RRSP)

    Learn how the Canadian government makes saving for your post-work years easy. We take you from your first contribution to your first withdrawal.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!