Tax Deferred

In the US, savings into retirement accounts are taxed in a number of different ways. Tax deferred, as the name suggests, is a benefit designed to encourage people to save for retirement by deferring any tax on income until such time as income actually starts to be drawn. Funds transferred to a deferred tax scheme account deduct no tax while an individual is building up their savings pot, maximising the amount invested by not deducting capital gains or dividend taxes in the portfolio, while potentially also minimising tax paid at the drawing stage because of the likelihood that the individual will be in a lower tax bracket than during the ramp-up period.