7.20.17

What is tax deferral?

Tags:

Calculator, pen, and tax documents with red and blue building blocks that spell out "tax"
Learn more

Find out more about Investment Services at Consumers Credit Union, available through LPL Financial (LPL), and meet our LPL Financial Advisors.

Click here

“Tax deferral” is a method of postponing the payment of income tax on currently earned investment income until the investor withdraws funds from the account. Tax deferral is encouraged by the government to stimulate long-term saving and investment, especially for retirement.

Only investment vehicles designated as “tax deferred,” such as IRAs, plans covering self-employed persons, and 401(k)s, allow taxes to be deferred. In addition, many insurance-related vehicles, such as deferred annuities and certain life insurance contracts, provide tax-deferred benefits.

There is a substantial benefit to deferring taxes as long as possible, because this allows the entire principal and any accumulated earnings to compound tax deferred. The compounding effect can be dramatic over an extended period of time and can make a big difference in the accumulation of a retirement nest egg.

Additionally, investments in tax-deferred vehicles are often made when you are earning a higher income and subject to a higher tax rate. When you reach retirement and begin taking distributions from your tax-deferred accounts, it is possible that your tax bracket will be lower.

One note of caution: When formulating your tax plan, recognize that all withdrawals from tax-deferred plans are taxed as ordinary income. Early withdrawals (prior to age 59½) may be subject to a 10% federal income tax penalty. Once again, the government is encouraging a long-term outlook.

 

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2017 Broadridge Investor Communication Solutions, Inc.

Securities offered through LPL Financial (LPL), a registered broker-dealer (member FINRA/SIPC).

Insurance products are offered through LPL or its licensed affiliates. Consumers Credit Union are not registered as a broker-dealer. Registered representatives of LPL offer products and services using Consumers Credit Union, and may also be employees of Consumers Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Consumers Credit Union. Securities and insurance offered through LPL or its affiliates are:

Not Insured by NCUA or Any Other Government Agency Not Credit Union Guaranteed Not Credit Union Deposits or Obligations May Lose Value

Consumers Credit Union provides referrals to financial professionals of LPL Financial LLC (“LPL”) pursuant to an agreement that allows LPL to pay Consumers Credit Union for these referrals. This creates an incentive for Consumers Credit Union to make these referrals, resulting in a conflict of interest. Consumers Credit Union is not a current client of LPL for brokerage or advisory services. Please visit https://www.lpl.com/disclosures/is-lpl-relationship-disclosure.html for more detailed information.

The LPL Financial registered representatives associated with this website may discuss and/or transact business only with residents of the states in which they are properly registered or licensed. No offers may be made or accepted from any resident of any other state.

Learn more

Find out more about Investment Services at Consumers Credit Union, available through LPL Financial (LPL), and meet our LPL Financial Advisors.

Click here

Enter your email address to receive notifications of new posts by email.

Get awesome new content delivered straight to your inbox.

[jetpack_subscription_form title="" subscribe_text="" subscribe_button="Subscribe" ]