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Tax Deferred Investing

Updated on October 23, 2011

Tax Deferred Investing

Most people that invest their money, would love to to make their investments grow faster than they are. To do so usually takes risks that can turn out to be costly. You don't necessarily have to take risks though, if you put your money into tax deferred investments. These can include IRAs (Individual Retirement Accounts) and retirement plans like 401Ks. There are some others as well that you can look into, like Keoghs or SIMPLES.

Most often there are caps or limits for these tax deferred investments, for the amount that you can invest each year. That said, it makes sense and many experts agree that it is good advice to take advantage of this opportunity. Any additional money you want to invest can be used toward taxable investments that have no cap annually.

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Drawbacks to tax deferred investing?

There is at least one drawback that is time sensitive for tax deferred investments. Usually, you will have to pay a penalty and taxes due if you take out money from a tax deferred investment before you reach 59 1/2 years old. This tax deferred incentive is intended for retirement savings.

Like many other Americans, its normal to be concerned for the costs of living during retirement. This kind of investment is perfect for those that are concerned about being taken care of during the retirement years. It is ideal and a great solution as an investment option. There are special situations also, where say if you become very ill, that a penalty can be waived. They take cases like a serious illness into consideration in many cases.

Some people use the idea of having an early withdrawal penalty as a reason to ignore these kinds of investments. Being wise and careful with your money, it is unlikely that you will need to withdraw it for emergencies before it is time.

It is still good to have stocks, cash and bonds as the core of one's portfolio, even though there are so many other things to invest in. Tax deferred investing is just another great idea to consider when looking for ways to make our money work for you.

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    • PhoenixV profile image

      PhoenixV 6 years ago from USA

      You have the best photos and write very helpful and informative hubs!

    • oceansnsunsets profile image
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      Paula 6 years ago from The Midwest, USA

      Thank you very much Phoenix, I really appreciate your comment and kind words! :)

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