Tax-Deferred Account
TaxGlossary term
Definition
An investment account where taxes on contributions and earnings are postponed until money is withdrawn, typically in retirement. Examples include traditional IRAs and 401(k) plans, which allow investments to grow without annual tax drag.
Related terms
- Traditional IRAA retirement account with tax-deductible contributions (if eligible) and tax-deferred growth. Withdrawals in retirement are taxed as ordinary income. RMDs required at age 73.
- 401(k)A tax-advantaged retirement savings plan offered by employers that allows employees to contribute a portion of their salary before taxes. Many employers offer matching contributions up to a certain percentage.
- Tax-Exempt InvestmentAn investment whose earnings are not subject to federal or state income tax. Municipal bonds are the most common example, as their interest income is generally exempt from federal taxes and often from state taxes if you live in the issuing state.
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