Paying Taxes on your Interest?
What Does Tax Deferred Mean?
Tax Deferral refers to investment earnings such as interest, dividends or capital gains that accumulate tax free until the investor withdraws them. Taxes can sometimes be deferred indefinitely, or may be taxed at a lower rate in the future, particularly for deferral or income taxes. The most common types of tax-deferred investments include those in individual retirement accounts, 401Ks, IRAs and deferred annuities.
- In a Tax-Deferred retirement plan or annuity, you pay no taxes on your interest until it’s withdrawn. In CD’s and savings accounts, your interest is taxed whether it’s left to accumulate or withdrawn.
- IRAs, 401Ks and annuities grow tax deffered. Interest is taxable when withdrawn. If withdrawn prior to age 59 1/2, the IRS will impose a 10% penalty except under specific conditions. Consult your tax advisor on specific points of importance to you.
Just say NO to 1099'sNothing beats the power of tax-deferred growth. If you are reinvesting your CD interest back into your CD year after year, your growth is subjected to annual income taxes.
The graph shows how much difference tax deferral can make. If you’re still paying taxes on your interest as it is earned, be aware that annuities may represent a sensible alternative.
This example assumes $100,000 at a 4% annual compound rate of return, with in a 28% tax bracket.
Give Yourself the Advantage of Triple Compounding:
You will earn interest on:
1. Your money
2. Your interest
3. Money you would have paid in taxes
When would you like to STOP paying taxes on your interest?
Tax deferral can significantly affect the growth potential of your retirement nest egg. The following table shows what pre-tax interest rate must be earned by a taxable account to equal the same tax-deferred rate of an annuity, assuming no current distribution. The following chart enables you to determine the yield required from taxable savings plan to match that of a "Tax Deferred" savings plan. Read down the first column to find the tax deferred interest rate and across the top row for your approximate tax bracket. The taxable equivalent yield is found where the tax-deferred row and the tax bracket column meet.
If a Dollar Doubled Every Year for 20 Years ...
it would be worth $1,048,576.00
But if the Doubled Dollar were
subjected to a 28% Tax Bracket ...
it would be worth only $51,353.00
In a given year, the average person will work until May 9th to pay all federal state and local taxes.
Amerity Financial nor it's representatives give tax advice. The information here is a summary of our understanding of the current tax laws as they relate to insurance products.