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February 15, 2009

Tax Deferral (or tax-deferred)

Your Guide

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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 Earnings that accrue in these accounts are not taxed until they are withdrawn from the account or retirement plan, i.e. taxation of these amounts are deferred until they are withdrawn.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SIMPLE IRAs, and 403(b) plans are deductible by the employer-if applicable-, and are not taxed to the participant until withdrawn from the retirement plan.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 These amounts are taxed when withdrawn from the plan.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

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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