Tax Deferred

AAA

DEFINITION of 'Tax Deferred'

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.

INVESTOPEDIA EXPLAINS '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.

RELATED TERMS
  1. Dividend

    A distribution of a portion of a company's earnings, decided ...
  2. Tax Planning

    Logical analysis of a financial situation or plan from a tax ...
  3. Income Tax

    A tax that governments impose on financial income generated by ...
  4. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt ...
  5. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  6. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
RELATED FAQS
  1. How is compound interest taxed?

    Compound interest is money that is earned and added to a principal balance and then earns additional interest. Adding interest ... Read Full Answer >>
  2. How do deferred tax assets help in meeting retirement goals?

    Investors who are saving for retirement need to consider a number of important factors, such as investment allocation, risk ... Read Full Answer >>
  3. What are the main reasons to obtain a Registered Retirement Savings Plan (RRSP)?

    A Registered Retirement Savings Plan, or RRSP, can be an excellent tax-deferred savings vehicle for Canadians who are looking ... Read Full Answer >>
  4. Are annuities qualified or nonqualified retirement instruments?

    An annuity is a retirement product with a contract between an investor and a financial institution, generally an insurance ... Read Full Answer >>
  5. What's the difference between a savings account and a Roth IRA?

    A savings account is an all-inclusive term , which includes IRAs and regular ( non-retirement) savings. A Roth IRA is a savings ... Read Full Answer >>
  6. Which states are the most expensive for high-income earners?

    The most expensive states for high-income earners are California, Hawaii and New York. The tax rates assessed by these states ... Read Full Answer >>
Related Articles
  1. Retirement

    IRA Assets And Alternative Investments

    Interested in non-traditional investing? Make sure you follow the rules to avoid prohibited transactions.
  2. Retirement

    Top 4 Reasons To Save For Retirement Now

    No more excuses. Make sure you are financially secure and independent for your golden years.
  3. Taxes

    IRA Contributions: Deductions and Tax Credits

    We outline the incentives and help you take full advantage of the benefits.
  4. Taxes

    Will Your Home Sale Leave You With Tax Shock?

    Learn how the newest tax laws apply to the proceeds you earn.
  5. Options & Futures

    How Much To Save To Become A Millionaire

    With a little discipline and the help of some powerful savings vehicles, anyone can hit this mark.
  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. Options & Futures

    Getting the Whole Story on Variable Annuities

    Variable annuities are another way to save money tax-deferred - but don't jump in blindly!
  8. Retirement

    Want To Leave Money To Your Family? Stretch Your IRA

    Find out how your beneficiaries can enjoy tax-deferred growth for as long as possible.
  9. Bonds & Fixed Income

    Long-Term Investing With Equity Index CDs

    Equity Index CDs are perfect for investors who don't mind hanging in for the long term.
  10. Savings

    5 Ways To Lose Your Retirement Nest Egg

    These common mistakes can put your savings at risk. Find out how to avoid them.

You May Also Like

Hot Definitions
  1. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  2. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  3. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Productivity

    An economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in ...
  6. Variance

    The spread between numbers in a data set, measuring Variance is calculated by taking the differences between each number ...
Trading Center