Understanding Tax-Deferred and Tax-Exempt Accumulation

Tax-Deferred Plan

Tax deferred saving plans like 401k,403b,457, traditional IRA, etc are federal approved way to encourage individuals& families to save for retirement. An individual may contribute a portion of pre-tax earnings to an investment plan.

Each year’s taxable earned income is reduced by the amount contributed to the plan. This lowers the federal taxes owed by the individual for that year.

Our advisors guide you select an optimized Invesment choices in the options available in deferred savings account to maximize the benefit and grow your account steadily. The pre-tax money boosts the amount invested, and its potential growth over time.

After retiring, the individual can draw from the plan for income which are taxed at your ordinary income rate. At age 72, holders of 401k’s and traditional IRAs must take required minimum distributions (RMDs), which are generally taxable at individual income rates.

A tax-deferred savings plan allows you to put off taxes on your invested money until you need it in retirement.

Tax Exempt Plan

Tax-exempt accounts don’t deliver a tax benefit when you contribute to them. Instead, they provide future tax benefits; withdrawals at retirement are not subject to taxes. Since contributions into the account are made with after-tax dollars, there is no immediate tax advantage. The primary benefit of this type of structure is that investment returns grow tax-free. Popular tax-exempt accounts are the Roth IRA and Roth 401(k).