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February 15, 2009

Tax Deferral (or tax-deferred)

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Definition

Treatment applied to earnings that accrue in qualified plans, IRAs, 403(b) and 457 plans, as well as some insurance and annuity products. Earnings that accrue in these accounts are not taxed until they are withdrawn from the account or retirement plan, i.e. taxation of these amounts are deferred until they are withdrawn. Tax deferral treatment also applies to pre-tax or deductible contributions to these plans.

Referring Cite

IRC§401(a), IRC§408, IRC§403

Additional Helpful Information

  1. Eligible employer contributions to qualified plans, SEP and SIMPLE IRAs, and 403(b) plans are deductible by the employer-if applicable-, and are not taxed to the participant until withdrawn from the retirement plan.
  2. Participants are permitted to make salary-deferral contributions to certain plans, including 401(k), 403(b), SIMPLE IRAs, 457(b) plans by reducing their taxable compensation. These amounts are taxed when withdrawn from the plan.
  3. Taxpayers may make deductible contributions to traditional IRAs, if eligible

Earnings on these amounts, including earnings on after-tax or nondeductible contributions to these plans (where nondeductible contributions are permitted) accrue on a tax-deferred basis

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Saver’s Credit

Definition Also known as the Saver’s Tax Credit: Nonrefundable tax credit available to eligible individuals who make contributions to their retirement account. The saver’s credit

Catch-up Contribution

Definition An additional contribution that can be made to a retirement plan by a participant who is at least age-50 by the end of the

Salary Deferral Contribution

Definition A contribution made pursuant to a participant’s election to have a portion of his/her salary/wages  contributed to his/ her employer sponsored plan  rather than

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