Deferring your taxes is a good way to save on your taxes today, and can be done by contributing to a tax-deferred retirement plan such as a 401K but it isn’t necessarily the best option for high-income earners. Tax deferred today means taxes are paid at retirement. Those individuals who are planning for the same income or better during retirement might be better off opting for a a Roth IRA, or Roth 401K. After tax options include savings accounts, checking accounts, and brokerage accounts, or anything that generates a 1099. Do not let employer contributions slip through your fingers though, take advantage of what is essentially free money.
- Tax deferral may not be a great option if you are a high earner and wealthy in retirement.
- Tax deductions such as mortgage and children will no longer be in play to help lower your taxes.
- Work with a financial advisor to understand if tax-deferral plans are right for you.
“It is also clear now — after decades of watching savers deal with these plans — that tax deferral can be a trap, especially for high-net-worth retirees.”