A tax
deferred account growing at an annual rate of 7.
Assuming he puts the federal maximum of 15% of his income into a tax
deferred account (401k), his contributions will hit the federal cap of $9500 at 8:30 am.
Given that the
deferred account starts out with almost twice as much value and pays no taxes on investment gains along the way, it's not surprising that it easily wins the race.
On the other hand, if the individual withdrew $50,000 from a tax
deferred account and $50,000 from a tax-free or fully taxable account, which doesn't count as earned income, the investor would be in the 15 percent tax bracket.
In short, whatever gains are not from a tax
deferred account, such as an IRA or 401k, is fair game for the Internal Revenue Service.
The second problem is that we don't hold enough of the variable pay, measured in a cash bonus, at risk in a
deferred account.
AlliedSignal pays its directors an annual retainer of $50,000, of which $15,000 is credited into a
deferred account in the form of restricted stock equivalents.
The PPA also provides a blueprint for annuity combo success, offering riders that may access the
deferred account value to pay for the LTC rider.
As with an employer-sponsored retirement savings plan, a rollover IRA allows individuals to keep retirement assets invested in a tax
deferred account, but with two additional potential advantages.
This contradicts the general wisdom that one should locate heavily taxed assets in the tax-
deferred account Asset allocatio n within tax
deferred accounts is quite similar to asset allocation in taxable accounts.
You can convert a tax
deferred account such as a traditional IRA or a 401(k) to a Roth IRA.
A step-by-step explanation of the worksheet mechanics of adjusting the tax
deferred account for a constantly changing tax basis is beyond the size limitations of this discussion; but one important point should be made.
