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Tax-Deferred Accounts
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Certain accounts such as deductible IRAs and employer-sponsored plans (401ks, 403bs, TSPs etc.) permit you to make contributions on a pre-tax basis.  They reduce your current Federal income tax liability--postponing it until you make withdrawals.  Along the way your investment grows tax-deferred; meaning you aren't nickeled, dimed, (or taxed) on earnings each year.  Many states also offer a current income tax break on contributions and tax-deferred growth.

  • Tax-deferred contributions make sense when you are in a higher tax bracket now than you think you will be in the future.
  • Since income limits are so low, being eligible to contribute to a deductible IRA is a good sign that a ROTH is likely to be the better deal over your lifetime.
  • However, you should ALWAYS contribute enough money to your employer-sponsored plan to get the full match.  You do not walk away from "free" money!  The only exception would be if you do not plan to work until you become at least partially vested in that match. 
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