Glossary
Tax-deferred
Definition
Tax-deferred means investment growth isn't taxed each year; tax is paid later, usually when money is withdrawn. Traditional IRAs, 401(k)s and annuities are tax-deferred. Deferral lets the full return compound, which adds up over long periods.
How tax-deferred works
Withdrawals from tax-deferred accounts are usually taxed as ordinary income, even when the growth came from capital gains.
Tax-free accounts such as Roth IRAs go further: qualified withdrawals aren't taxed at all.
Why it matters to a firm
Choosing between taxable, tax-deferred and tax-free accounts is core tax-aware planning.
Calculators that use tax-deferred
Questions about tax-deferred
Is tax-deferred the same as tax-free?
No; tax is paid later.
Are withdrawals capital gains?
Usually ordinary income.
Do annuities defer tax?
Yes, but fees matter.
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Related terms: Asset location · Roth conversion
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