Tax Deferred Investment
In many cases when a financial adviser is talking about tax deferred investment they are referring to the many retirement plans now available which allow a person to defer the taxes they would normally be paying on the contributions they make as well as those earnings which help it grow. These taxes will then not have to be paid until a person starts to withdraw the funds from their account usually upon their retirement.
Certainly by placing money into these retirement plans a person can actually reduce the amount of taxes that they are currently paying. Both aspects of the process contribute to a more stable and secure financial situation once they retire.
In order to ensure that you get the right type of benefits from a tax deferred retirement plan such as 401k or IRA you will need to know a little bit more about them. Below we will provide you with a little more information as to what these are.
1. 401k or IRA
These are retirement plans offered by companies to their employees. As the employees and their employers contribute to these plans so they begin to grow and all tax free. All contributions made by employees are taken from their salary before tax (so this can actually help them by placing them in a much lower tax bracket and so actually reduce the amount of tax they pay on their salary each year). Currently the maximum amount of contributions a person may make to such plans is $15,500.
2. Self Employed
These are retirement plans for those who are self employed and are controlled by them. They allow a person to take a portion of what they earn and place it directly into a tax deferred plan. You are currently allowed to either contribute 25% or $40,000 (whichever is the least amount) of your income to these types of plans. 3. Personal Savings Plans
These are ones a person can set up in addition to any plans that their employers may offer. They allow you to make a contribution of around $3,000. As these plans grow the money earned on them is completely tax free. But unfortunately unlike the 401k or IRA plans these contributions are not tax deductible.
Although the personal savings plans are open to anyone when it comes to those tax deferred investment plans organized by a company you may find that you will have to wait for a period of time before you can join them. Generally a lot of company's will only allow their staff to join such plans once they have been in their job for 3 months or more. So it is advisable that you speak with a financial advisor who will be able to provide you with information as to what is likely to be your best course of action when it comes to saving for your retirement. |