Tax Deferred

What is 'Tax Deferred'

Tax deferred refers to investment earnings such as interest, dividends or capital gains that accumulate tax free until the investor withdraws and takes possession of them. The most common types of tax-deferred investments include those in individual retirement accounts (IRAs) and deferred annuities.

BREAKING DOWN 'Tax Deferred'

By deferring taxes on the returns of an investment, the investor benefits in two ways. The first benefit is tax-free growth: instead of paying tax on the returns of an investment, tax is paid only at a later date, leaving the investment to grow unhindered. The second benefit of tax deferral is that investments are usually made when a person is earning higher income and is taxed at a higher tax rate. Withdrawals are made from an investment account when a person is earning little or no income and is taxed at a lower rate.

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RELATED FAQS
  1. What are the most common deferred tax assets used by individuals?

    Use these deferred tax assets to reduce your tax liability and grow your assets simultaneously. Discover the most common ... Read Answer >>
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    Learn how tax deferred assets can help individuals achieve long-term financial goals such as retirement and how they differ ... Read Answer >>
  3. How is a deferred tax asset taxed?

    Find out how the IRS and FASB treat deferred tax assets, which a company can recognize in order to reduce its future tax ... Read Answer >>
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    Find out when U.S. companies are allowed to hold deferred tax assets and report them in the financial statements according ... Read Answer >>
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    The marginal tax rate is the rate of tax that income earners incur on each additional dollar of income. As the marginal tax ... Read Answer >>
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