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Tax Deferred Retirement Income
Tax-deferred retirement income refers to income received from a retirement account or annuity that is not taxed until it is withdrawn. In other words, the investment earnings in the account grow tax-free until they are taken out as distributions. This can result in a lower overall tax bill, as the investment earnings have more time to compound without being reduced by taxes.
Examples of tax-deferred retirement accounts include traditional IRAs, 401(k) plans, and fixed annuities. In contrast, other retirement accounts, such as Roth IRAs and Roth 401(k) plans, are funded with after-tax dollars, so the investment earnings and distributions are tax-free.
It is important to consider your individual tax situation when choosing between tax-deferred and tax-free retirement accounts, as well as your financial goals and risk tolerance. A financial advisor can help you determine the best course of action for your specific circumstances.
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