Tax deferred

Tax-Deferred Income

Any income that one earns but does not receive until a later date, resulting in a situation in which taxes on the income are not paid until later. Common examples of tax-deferred income fall into two broad categories. The first is income in certain retirement accounts; the account holder is not liable for taxes until funds are disbursed. The second is the capital gain on some bonds such as U.S. Treasury securities; taxes on these gains are deferred until maturity. It is important to note that tax-deferred income is not the same as tax-free income, which has no tax liability at all.

Tax deferred.

A tax-deferred account allows you to postpone income tax that would otherwise be due on employment or investment earnings you hold in the account until some point the future, often when you retire.

For example, you can contribute pretax income to employer retirement plans, such as a traditional 401(k) or 403(b).

You owe no tax on any earnings in these plans, or in traditional individual retirement accounts (IRAs), fixed and variable annuities, and some insurance policies until you withdraw the money. Then tax is due on the amounts you take out, at the same rate you pay on your regular income.

A big advantage of tax deferral is that earnings may compound more quickly, since no money is being taken out of the account to pay taxes. But in return for postponing taxes, you agree to limited access to your money before you reach 59 1/2.

References in periodicals archive ?
The contributions grow tax deferred, but the distributions are taxed at the applicable ordinary income rates.
By far, the most frequent question I receive today about tax deferred exchanges is "May the partners or members of a partnership or LLC taxed as a partnership perform a [section]1031 tax deferred exchange if not all of the partners/members want to exchange or if all partners/members want to exchange independent of one another?
Note that earnings on these accounts are not tax deferred and that "Kiddie Tax" may apply.
They have limited uses in a portfolio--that is, they are useful if you have a large amount of money that you really want to grow tax deferred and have no use for except to supplement retirement," he says.
Employer contributions are deductible for the employer and tax deferred for employees, within certain limits.
Instead, pension distributions are taxable under section 402; the IRS noted that Congress had neither enacted nor intended any exception to section 402 to allow pension distributions to be tax deferred under section 125.
Under annuity and insured arrangements, earnings are tax deferred.
In my experience, investors commonly ask many of the same questions when contemplating a tax deferred exchange.
Basically, there is now an increased incentive to hold dividend-paying and higher-risk/return long-term equity investments outside of tax deferred accounts, and ordinary income, safety-oriented investments (such as taxable bonds, certificates of deposit, treasuries, etc.
According to Internal Revenue Code section 408(e)(1), amounts an IRA earns are generally tax deferred until distributions are made.