AeGIS Financial Group, Inc. - Tax Deferral : Article: Tax Deferral

What Is Tax Deferral?

“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, tax-deferred investments are often made when you are earning a higher income and are therefore taxed at a higher rate. When you reach retirement and begin taking distributions from your tax-deferred accounts, there is the possibility that you will be in a lower tax bracket.

One note of caution: When formulating your tax plan, recognize that most tax-deferred investments do incur penalties for early withdrawals prior to age 59½. All withdrawals are subject to ordinary income tax, but early withdrawals are subject to an additional 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.

Steve H. Nelson, is a Registered Representative of and offers securities through FSC SECURITIES CORPORATION, Member FINRA/SIPC. *Advisor Services offered through AeGIS Financial Group, Inc. not affiliated with FSC Securities or registered as a broker dealer. They are not obligations of, or guaranteed by, FSC SECURITIES CORPORATION or any other affilitated entity. Such investments will fluctuate in value and are subject to investment risks, including loss of principal. A broker/dealer, investment advisor, BD agent or IA representative may only trasact business in a particular state, or only if they are excluded or exempted from the states's broker/dealer, investment advisor, BD agent or IA rep requirements, as the case may be: and follow up, individualized responses to comsumers in a particular state by broker/dealer, investment advisor, BD agent, or IA rep that involve either the effecting or attempting to effect transactions in securities or the rendering of persoanl investment advice for compenstaion , as the case may be, shall not be made without first complying with the state's broker/dealer, investment advisor, BD agent or IA rep requirements, or pursuant to an applicable state exemption or exclusion. For information concerning the licensure status of disciplinary history of a broker/dealer, investment advisor, BD agent or IA rep, a consumer should contact his or her state securities law administrator. Steve H. Nelson is registered in the following states: Arkansas, Arizona, California, Colorado, Connecticut, DC, Florida, Georgia, Illinois, Indiana, Michigan, Maine, Nebraska, New Mexico, Nevada, Ohio, Oregon, Texas, Utah, Washington.