Learn even more about this topic with the Encyclopedia of Personal Finance™
There are a variety of tax benefits available with retirement
? Tax deferral: The
privilege of putting off paying taxes until some future date. This date may come
when you retire or begin withdrawing funds from a retirement plan. Tax deferral
allows an investment to grow faster before being taxed. Also, many retirees may
be in a lower tax bracket than when they were employed, so tax rates may be
? Tax-free rollover: A rollover of
one retirement plan into another without the rollover being taxed. Income taxes
may be avoided if the amount is rolled over within sixty days, and if the
receiving plan contains provisions for tax-avoidance.
? Tax shelter: An investment that
allows one to legally avoid some taxes. Traditional IRA accounts are tax
shelters because one does not pay taxes on income contributed to them.
? Tax-sheltered annuity: A
retirement plan for employees of public schools and some tax-exempt
organizations, such as churches and charity groups. 403(b) plans are commonly
called tax-sheltered annuities despite the fact that they can be funded with
mutual funds as well. Taxation of earned income can be deferred through pre-tax
contributions to a TSA.
And now, some final words on retirement