Tax Deferred
Tax Deferred refers to earnings that are postponed and free from taxation until investor withdraws them. It is a system of paying taxes in the future for incomes earned in the current period, but only if incomes are not taken in possession in that period.
This is a good way for to defer taxes for investors with high current earnings, because one would have to pay higher tax if he has higher earnings. By deferring withdrawal of earned assets to some later period when investor will have lower incomes, he benefits from lower tax obligation.
Individual retirement accounts (IRA), 401(k), Keogh plan, deferred annuities or savings bonds are examples of tax-deferred investments.
| Related Terms: Keogh Plan |