What is a Tax Deferral?
Tax deferral is really one of the most misunderstood aspects of investing in financial planning. Tax deferral is essentially are you going to pay taxes on the money when you earn it, or are you going to pay taxes on the money when you spend it?
There are multiple vehicles that offer tax-deferred investments. You can put money into a traditional IRA or a 401k, and it's tax-deferred, it grows without being taxed, and it's taxed in retirement when you draw the money out.
Another vehicle that we often use for tax deferral is a non-qualified annuity - non-qualified, meaning it's not specifically retirement money. Normally in an account like that, if you earn money in a year, you pay taxes on that money when you earn it, even if you don't spend it, even if you leave it in the account, let the account continue to grow.
If you can put the money into a tax-deferred vehicle, like a non-qualified annuity, it allows you to postpone the tax until the future when you withdraw the money out.
The Benefits of Tax-Deferred Investments
Gives you control over when you want to pay those taxes.
Eliminates tax drag which is when you earn money, and you pay taxes on it.
Learn More About Tax-Deferred Investments
Tax deferral is one of the most misunderstood topics but can be a really valuable tool for the right person. If you are interested in learning more about your investment vehicle options, contact our team today!
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