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What are the Advantages of tax deferred retirement plans?
First off, there are very few, if any, disadvantages. Advantages include the basic concept that paying taxes later, in this case frequently much later, is much bettr than paying them now. Add to it, the taxes you don't pay you get to invest and earn a return on. Those earnings are generally tax deferred too. Special status of most qualified deferred plans means they are exempt from attachment or seizure, even during a bankruptcy. (Security of savings). There are generally methods to obtain hardship or special purpose early withdrawals. If the funds pass to your heirs, upon death, before or after you start withdrawing them, they generally pass without being taxed too.
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Is the amount you delayed to pay for tax in future.
Answer Deffered Tax is the amount the payment of which you delayed to pay in future. There are many reasons for deffered taxation. There are so many expanses and incom…es which are not allowed by taxation department of Government but we enter as income and expenses in our financial statements because in accounting they are allowed as income or expense and that's why in the end the net income calculated by company and tax department is rearely reconsile due to problems mentioned above and due to that tax calculated by company is different the tax calculated by tax departments that's why deffered taxation is use to adjust tax between entity and tax department.
Basically, the book tax provision has 2 part - current (what you will pay this year) and deferred (what you will pay in some other period. It is determined using the financial… book income. (Yes, there are some things, called "permanent" differences which are past this discussion). Tax accounting uses different conventions and requirements to determine what "income" is TAXABLE income. So for example, while financial accounting may require a company record an expense for bad debts - using some basis, (perhaps it's past history that some percent of sales are never collected) and that reduces book income that year - tax has a different set of requirements - which says that the expense CANNOT be recoded until it is absolutely realized (an "all events" test, not just an estimate) has been met. So while over the years, the amount of bad debt (reducing income) may be very, very similar - when it happens is different. So, while the book provision, using book income, records a total tax expense that year which incorporates the booked estimate of bad debt, since tax will not report that expense until a later period and will pay the tax on that income until the tax expense is recorded, the total provision (current + deferred) carries that until tax "catches up" to books (in this case.) These differences can go either way, and therefore produce a deferred tax asset (something you paid tax on - recognized as income for tax before book, or a deferred tax liability (where say books allowed an expense before tax (as in the above)). The net position (having a deferred asset or liability) is what is commonly shown on financial statements, although depending on the level of presentation, there may be one line for each - with detail of at least the major items causing the differences, someplace else in the statements.
An IRA is the primary tool used to enhance tax advantage and retirement income. IRA or Individual Retirement Account is a form of retirement plan for individuals.
Yes...actively working isn't a requirement
Depends on what type of retirement plan, for specifics. But, "retirement plans" are usually covered by two major laws (ERISA and PPA) which grant certain tax advant…ages and protections to the plan's participants and beneficiaries. Most retirement plans are tax-deferred vehicles. That is, the money that is set aside in them, for retirement, grows without accruing tax liabilities. (Or, in English that means that while the money is in the plan, the money doesn't owe taxes... although typically when a participant withdraws the money in retirement it is considered taxable income on the participant's form-1040.) This is an advantage because the money grows faster over time without paying annual taxes than with. Another key thing about retirement plans, is that the assets are protected from bankruptcy. An employer's plan, is not an asset of the employer, but an independent trust. Also, while an employees money may be in the plan, it's not a direct asset of the participant. So, for example, if a company were sponsoring a 401k plan, and it goes bankrupt, the law provides that the assets are held specifically for the participants and beneficiaries. Similarly, if a participant in a plan files for personal bankruptcy, their retirement plan assets aren't subject to his/her creditors either. There certainly are other advantages, but you'd need to ask a more specific question for me to elaborate. There are a few disadvantages to a retirement plan as well. One that I hear occassionally is the limited availability of the money. As I said, most plans are governed by both law, and the specifics of the plan, found in a Plan Document. And, one of the general rules of law, is that that tax-advantages mentioned above, means that in general, plans make it difficult for a participant to take their money from the plan prior to retirement age (often "retirement age is considered to be 59 1/2 yrs old.) Usually, to take your money prior to retirement age, you would pay a 10% penalty in addition to counting the withdrawal as income. And, depending on your plan, there may be restrictions on why and how much you can take. More recently, some have commented that retirement plans also have hidden expenses and fees. I think some of this is press hype, since the fees are required by law to be disclosed if you ask... but, retirement plans may have some "different" (not "extra") fees associated with it. Again, the government requires that most plans have an annual audit, be held in a retirement trust, and do "testing" to be sure the plan doesn't discriminate in favor of some over others. These rules, and the accounting, recordkeeping, and other services to administer the plan may result in fees being charges to participants. (The law also requires the plan's trustees and sponsors to ensure that these fees are reasonable.) So, to be sure, a retirement plan isn't "free". But, when you compare these fees with other ways employees have to save -- bank funds, mutual funds at brokerage firms, or insurance policies -- typically the plan is cheaper since it gets a "group" discount because of the plan's size, as opposed to individual "retail" fees charged to a small individual investor. hope that helps
Exempt benefits are better...as exempt means not taxable. Deferred means not taxable now..but will be at some time.
This response is for tax year ending 2009 only: Yes there is. It usually is placed in on the standard 1040 in line #32. "IRA deduction" be sure to read page 31 of the instruct…ions if you are taking this deduction because not everything is always deductible. If you have exceeded the maximum contribution, that amount would not be deductible. In addition, ROTH IRA contributions are not tax deductible either. There is also a credit if your income falls below a certain threshold and you have contributed to an IRA account. It is found on the standard 1040 line 50 and requires that form 8880 be filed along with the line on 1040 to receive the credit. The income limits for the credit are $27,750 - Single, 41,625 - Head of Household and 55,500 - Married filing jointly.
A retirement savings plan with special tax benefits that you may set up if your employer does not offer a retirement plan is called?
A traditional IRA account. Go to the IRS gov web site and use the search box for Publication 590 Individual Retirement Arrangements
This a retirement plan that you can choose to have amounts withheld from your earnings and the amounts will not reported in your gross wages in box 1 of the W-2 tax form and w…ould not be subject to income tax until in a future year once you are over the age of 55 or 59 1/2 when you would start taking distributions from your retirement plan. The amounts will still be subject to the social security and medicare taxes for the year. Any nonqualified distribution before the above age limits could be subject to the 10% early withdrawal penalty unless you meet one of the exceptions to the early withdrawal penalty.
DEFERRED taxes MEAN not paying certain types of taxes currently. The payment of taxes on certain income or different asset at some period of time in the future. The buying and… holding of capital assets before selling the capital assets in the future. Deferred compensation that will be subject to the deferred income tax on the deferred compensation sometime in the future. Deferred taxes for investor owned public utilities.
In Income Taxes
What up University of Phoenix CHEATER! Just kidding, its "B"
In Income Taxes
Many governments allow tax advantages in the areas of retirement plans to encourage persons to provide for their own retirement, reducing the load on social security system. B…y taking advantage of these schemes, both employers and employees can reduce taxes.
A 401K retirement plan is an account to which an individual can add funds via pre-tax payroll deductions. The advantages of the 401K plan include the tax advantages, the empl…oyer matched contributions, the customization and flexibility of investments, and the portability of the product.
In IRA Plans
One of the biggest advantages of a Roth Individual Retirement Account is that, if set up properly, one does not have to pay taxes for it. There are also less restrictions on t…he IRA regarding investments.
Whether you are recently retired or entering the workforce, T. Rowe Price can help you achieve your retirement saving goals. Our investment products and guidance make reti…rement planning faster and easier. When it comes to helping your retirement savings last as long as possible, your withdrawal strategy is just as important as the strategy you used to save. Generally, allowing tax-deferred investments to grow as long as possible is smart. Consider withdrawing from taxable accounts (mutual funds and individual securities) first. Although you may need to pay capital gains tax, typically the rate for this tax is more favorable than the ordinary income tax rate. Next, tap into tax-deferred savings such as Traditional and Rollover IRAs. Use assets from a Roth IRA last, particularly if you hope to pass assets along to heirs. Although distributions are potentially tax-free, the Roth IRA offers some significant estate planning benefits.