How Does Deferral of Income Add to Savings and Investments?
By comparing the differences between independent after-tax savings plans and deferred income plans, you can see the substantial advantages of investing through a deferred income plan. In a deferred income plan, all of the dollars you defer will be invested, and you do not pay income taxes on those amounts at the time of deferral. Income taxes on the amounts invested and on any earnings on your investments are deferred until you actually receive the money–presumably after retirement, when you may be in a lower tax bracket. The examples below and on the following page show how deferred income can add to savings and investment, especially when measured over the long term. Net Result of $100 in Take-Home Pay (28% Tax Bracket and 8% Interest Rate).
