What is #tax deferred growth? #retirement

As discussed in an earlier reading, 'What type of money do you have?' https://www.advocateinsurers.com/post/what-type-of-money-do-you-have-how-much-will-you-need-in-retirement-we-can-assist. There are different types of money. One being tax-deferred growth. In this reading we will look at old school tax-deferred growth.

What is Tax-Deferred Growth?

Tax-deferred growth refers to the increase in the value of an investment that is not subject to taxes until a later date. This concept is commonly associated with certain types of retirement accounts and investment vehicles, allowing individuals to accumulate wealth without immediate tax implications.

Key Features of Tax-Deferred Growth

• Delayed Taxation: Taxes on earnings, such as interest, dividends, and capital gains, are postponed until the investor withdraws funds from the account.

• Compound Growth: Since taxes are not deducted annually, the investment can grow more significantly over time due to the power of compounding.

• Retirement Accounts: Common examples include 401(k) plans, traditional IRAs, and certain annuities, which offer tax-deferred growth as a primary benefit.

• Withdrawal Rules: Typically, taxes are due upon withdrawal, and there may be penalties for early withdrawal before a certain age (often 59½ for retirement accounts).

Benefits of Tax-Deferred Growth

• Increased Contributions: Since you don't pay taxes on earnings until withdrawal, you can contribute more effectively to your retirement accounts.

• Flexibility in Investment Choices: Many tax-deferred accounts offer a variety of investment options, allowing you to tailor your portfolio to your retirement goals.

• Increased Investment Potential: By not paying taxes annually, investors can reinvest more of their earnings, leading to greater long-term growth.

• Tax Strategy: Investors can manage their tax liabilities by choosing when to withdraw funds, potentially minimizing their tax burden.

• Encourages Saving long-term.

  
  

Common Tax-Deferred Accounts

• 401(k) Plans

• Traditional IRAs

• 403(b) Plans

Tax-deferred growth is a valuable feature of many investment accounts, enabling individuals to build wealth more effectively by deferring tax payments. Understanding how it works can help investors make informed decisions about their financial future. This is an opportunity for our team to assist you in planning.

While we all have a role to play, none more than important than yours. And, we understand. You and your family are our commitment. Having a team with experience assisting you helps provide the client peace of mind. A team prepared with wealth-building strategies to help leave a legacy.