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The Power of Tax Deferral

One way to boost your retirement is to take advantage of opportunities to reduce the impact of taxes on your retirement investments. Whether it is a current tax reduction, the tax preservation of a retirement plan distribution, or long-term tax-deferred growth, IRAs offer powerful tax advantages.

Depending on the type of IRA, your money grows either tax-deferred or tax-free.

IRA Advantage: Tax-Favored Compounding

Tax-deferred IRA versus fully taxable growth of $3,000 annual contributions over 40 years assuming 6% growth.

This chart assumes a $3,000 annual contribution at the beginning of each year, a hypothetical 6% average rate of return, and a 30% combined federal and state income tax bracket.

This example assumes deductible contributions. Earnings grow tax-deferred until withdrawn at the end of the period.

Should the IRA be withdrawn as a lump sum at the end of the period, its value would be $359,941 after 30% taxes.

Totals do not reflect that all or a portion of IRA distributions may be subject to a 10% early withdrawal penalty tax and/or ordinary income tax, depending on individual circumstances at the time of withdrawal. In most cases, the 10% penalty applies on withdrawals prior to age 59½.

This hypothetical example is for illustrative purposes only and does not represent the performance of any product, nor the fees and expenses associated with any investment product. Had fees and expenses been included, there may be a significant difference in the comparable results.

Changes in tax rates, including lower maximum tax rates on capital gains and dividends, would make the investment return for the taxable investment more favorable.

Customers should consider their personal investment horizon and tax bracket, both current and anticipated, when making an investment decision as they may further impact the results of the comparison.


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Last Updated: 12/14/2017