The power of tax-deferred growth:
Why are 401(k) plans, annuities, and IRAs so popular?
Please refer to our transcription below if it is easier and/or more convenient for you:
Deferring taxes can be a powerful investment decision. The dollars that would have gone to paying taxes remain in your account, which means more money working for potential returns.
Here’s how it works: Say you invest $10,000 a year in a taxable account earning 6% and your tax rate is 25%. After 20 years, your account would be worth nearly $330,000, a tidy sum; but that same money put in a tax-deferred account would be worth nearly $390,000, $60,000 more. That’s one of the reasons why 401K plans are so popular, combing tax-free contributions with tax-deferred growth can be a sound long-term strategy.
Other accounts also let you delay paying taxes. Individual retirement accounts or IRAs, allow money to accumulate tax deferred. Wealthy investors see the benefits of traditional IRAs. At last check 72% of households with annual incomes of $200,000 or more have at least one IRA.
Roth IRAs don’t offer tax-free contributions but they do offer tax-free growth and tax-free withdrawals. Created in 1988, their popularity is increasing, in fact 55% of accounts have been opened since 2002.
Annuity contracts, which trace their contracts back to Roman times also offer tax deferred growth and contributions are made with after-tax dollars. There are many different types of annuity contracts. A review of your unique situation would help determine if one is suitable.
Put the power of tax deferral to work for you. Call today so we can review your retirement strategy.