What is a tax-deferred investment?

A tax-deferred investment is a type of financial product made to help individuals save on taxes. In Arizona, these investments allow individuals to put money away for retirement or other long-term savings purposes without having to pay taxes on the earnings until the money is withdrawn. Tax-deferred investments are often used in retirement plans such as 401(k)s, 403(b)s, and IRAs. The main benefit of a tax-deferred investment is that the money grows at a faster rate over time since it is not subject to taxes each year. The funds held in these investments can grow significantly over time due to compound interest. This means, that as your earnings increase, so does the amount of compound interest accrued each year. The disadvantage of a tax-deferred investment is that taxes will eventually need to be paid when the money is withdrawn. For instance, if you have a 401(k) account, you will likely face income tax when you begin taking a distribution from the account upon retirement. However, depending on your overall tax situation, it could still be beneficial to take advantage of this type of investment due to the tax savings in the present. Overall, tax-deferred investments can be a great way for individuals to save on taxes and build their retirement savings. While taxes will eventually need to be paid on the withdrawals, the amount of savings that can be accrued from a tax-deferred investment can be significant.

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What is a tax-deferred investment?

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