The reason many people are anxious about the future is because of the uncertainty that lies ahead. How much income will you have in the next ten years? What happens when you age and have to retire from that job that you love? The thought of having no regular income is quite scary considering the world that you live in today. Thankfully, you can do yourself a great favour by planning your retirement and making sure that your sunset days are worth living. So quit worrying and start planning! The following piece teaches you about tax-deferred and tax-exempt saving schemes to get you on the right path:
Tax-Deferred Saving Schemes
Planning your taxes should be at the centre of your retirement savings plan. A tax-deferred savings plan allows you to realise tax deductions immediately up to the full amount you contribute to your retirement savings scheme. Essentially, the implication here is that the income tied to your savings does not attract taxes at that time, but it is deferred to a later date. However, any taxes due on the amount you contribute are levied at the time of contribution.
Tax-deferred savings accounts have several advantages. First, you have the immediate benefit of incurring fewer taxes in the current year or period. This is an adequate incentive to push more funds into your savings account. Secondly, you will have less taxable income when you retire and have a smaller tax burden. A tax-deferred savings account helps you win both ways.
Tax-Exempt Savings Scheme
A tax-exempt account will not give you any tax benefits when you contribute to your savings scheme. You contribute to the scheme with your after-tax revenue, eliminating the instantaneous tax advantage available in the tax-deferred option. Instead, these schemes give you tax benefits when you withdraw your retirement savings in the future. The withdrawals will not attract any taxes.
The obvious advantage of a tax-exempt savings scheme is that your investment grows without accruing any tax at maturity. You can benefit from increasing interest rates and investment multiplier factors without paying taxes on the additional income.
The scheme you choose depends on your current and future tax obligation or brackets. For instance, an individual with a large tax bracket can opt for a deferred tax plan to lower their tax obligation while reasonably saving for the future.
To learn more, reach out to a retirement planning service like Seaview Financial.Share