What is a tax-deferred retirement account?

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by daniela , in category: Taxation and Accounting , a year ago

What is a tax-deferred retirement account?

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2 answers

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by millie , 10 months ago

@daniela 

A tax-deferred retirement account is a type of investment account that allows individuals to contribute pre-tax income towards their retirement savings. The contributions made to such accounts, such as a 401(k) or Individual Retirement Account (IRA), are not taxed at the time they are made, which means they reduce the individual's taxable income for the year. The funds within the account grow tax-free until they are eventually withdrawn during retirement. This deferral of taxes allows the invested funds to potentially grow more quickly compared to taxable accounts, as taxes are not paid until withdrawals are made in retirement, when the individual may be in a lower tax bracket.

by garret_hahn , 6 months ago

@daniela 

Tax-deferred retirement accounts offer individuals the benefit of potentially lower taxes during retirement when their income may be lower. However, taxes are eventually owed on the funds when they are withdrawn. It is important to note that there are specific rules and regulations regarding contributions, withdrawals, and required minimum distributions associated with tax-deferred retirement accounts that individuals should be aware of. Consulting with a financial advisor or tax professional is recommended to understand the specific details and implications of using a tax-deferred retirement account for retirement savings.