LaSalle St. Securities,www.lasallest.us,investment planning,financial advisor,investment advisor,invest,mutual fund,stock,bond,asset allocation,variable annuity,small business,high net worth,401(k),balance,diversification,risk management,investment

What Is Tax Deferral?

“Tax deferral” is a method of postponing the payment of income tax on currently earned investment income until the investor withdraws funds from the account. Tax deferral is encouraged by the government to stimulate long-term saving and investment, especially for retirement.

Only investment vehicles designated as “tax deferred,” such as IRAs, plans covering self-employed persons, and 401(k)s, allow taxes to be deferred. In addition, many insurance-related vehicles, such as deferred annuities and certain life insurance contracts, provide tax-deferred benefits.

There is a substantial benefit to deferring taxes as long as possible, because this allows the entire principal and any accumulated earnings to compound tax deferred. The compounding effect can be dramatic over an extended period of time and can make a big difference in the accumulation of a retirement nest egg.

Additionally, tax-deferred investments are often made when you are earning a higher income and are therefore taxed at a higher rate. When you reach retirement and begin taking distributions from your tax-deferred accounts, there is the possibility that you will be in a lower tax bracket.

One note of caution: When formulating your tax plan, recognize that most tax-deferred investments do incur penalties for early withdrawals prior to age 59½. All withdrawals are subject to ordinary income tax, but early withdrawals are subject to an additional 10% federal income tax penalty. Once again, the government is encouraging a long-term outlook.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor.

This material was written and prepared by Emerald.
© 2010 Emerald

Securities are offered through LaSalle St. Securities, LLC, 940 N. Industrial Drive, Elmhurst, IL 60126-1131, member FINRA/SIPC. Accounts are carried by National Financial Services, LLC, Member NYSE/SIPC.

Securities in accounts carried by National Financial Services LLC (NFS), a Fidelity Investments Company, are protected in accordance with the Securities Investor Protection Corporation (SIPC) up to $500,000 (including $100,000 for cash awaiting reinvestment). NFS has also arranged for coverage above these limits. Neither coverage protects against a decline in the market value of securities, nor does either coverage extend to certain securities that are considered ineligible for coverage. For more details on SIPC, or to request a SIPC brochure, visit www.sipc.org or call 1-202-371-8300.

Investment securities involve certain risks, including the potential for possible fluctuations in investment return and the possibility of loss of principal. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than the original cost.

LaSalle St. Investment Advisors, LLC is affiliated with LaSalle St. Securities, LLC, a registered broker/dealer, member FINRA/SIPC.

Information in this website does not constitute an offer, or solicitation of an offer, to sell securities or insurance products. Such an offer can only be made by a registered representative of LaSalle St. Securities, LLC, and for some products, only when accompanied by a detailed prospectus. You should obtain all the information and carefully read the prospectus before investing in any securities.