Table of Contents

What is a tax-deferred account?

3 types of tax-deferred accounts

The importance of tax-deferred accounts

LearnSaving for RetirementWhat Are Tax-Deferred Retirement Accounts?

What Are Tax-Deferred Retirement Accounts?

Jun 21, 2022


5 min read

Tax-deferred accounts were created to incentivize saving for retirement. 401(k)s and IRAs are two common types of tax-deferred accounts.

Tax-deferred accounts were created to incentivize saving for retirement. 401(k)s and Individual Retirement Accounts, or IRAs, are two common types of tax-deferred accounts.

What is a tax-deferred account?

A tax-deferred account is one in which you defer paying taxes until a later date. These accounts are meant to be vehicles for retirement savings.

Tax-deferred vs. tax-exempt accounts

“Tax-deferred” and “tax-exempt” may be used interchangeably to describe retirement accounts, but the two terms mean very different things. The difference comes down to when you pay taxes on your contributions.

With a tax-deferred account such as a 401(k), your tax savings apply when you contribute, while with a tax-exempt account such as a Roth IRA, your savings show up when you make withdrawals.

Benefits and restrictions of tax-deferred accounts

Tax-deferred accounts have two primary benefits:

  1. If you qualify for and choose to contribute to a 401(k) plan, you can defer paying income tax on the money you contribute to the plan. Instead, you’d pay taxes on the money when you withdraw it, as long as you withdraw it after age 59 ½.
  2. When you invest in a tax-deferred account, you won’t pay taxes on the profits until you withdraw. Note, however, there is still a level of risk, as the investment could stagnate or lose value over time.

That said, these accounts also have some restrictions:

  1. You can’t withdraw money from these accounts until age 59 1/2 without paying a penalty of 10% plus income taxes.
  2. There are also limits on how much and how little you can contribute to these accounts, depending on your income, marital, and employment status.
  3. You have to start withdrawing money at age 72 from some accounts, even if you don’t need the money yet.

3 types of tax-deferred accounts

  1. Employer-sponsored retirement plans

Two of the most common employer-sponsored retirement accounts are the 401(k) and the 403(b).


A 401(k) is typically offered through your employer. An employee designates a certain percentage of their salary to flow directly into that account before any taxes are paid on that money.

Some employers also choose to contribute to employee 401(k) plans. The employer may match contributions dollar-for-dollar up to a certain amount or percentage of your salary, or contribute 50 cents on top of every dollar you contribute. You may need to contribute a certain amount to your 401(k) each month for your employer to match your contributions.

Generally, there are no minimum contributions needed to maintain a 401(k). The maximum you can contribute annually is $19,500, as of 2021. If you are older than 50, you can contribute an extra $6,500 in “catch-up” contributions.

Generally, you can’t access these funds until age 59 1/2. If you do withdraw early, you pay a 10% penalty and income taxes. There are a few exceptions, such as total and permanent disability.


A 403(b) works much like a 401(k). Both employers and employees can contribute pre-tax money into the account. However, 403(b) accounts are only accessible to certain kinds of employees. They’re designed for people who work for tax-exempt organizations such as charities, religious groups, or public schools.

You must contribute at least $200 a year from your salary to qualify for a 403(b), according to the IRS.

  1. Individual Retirement Accounts (IRA)

An IRA is a type of tax-deferred account that isn't tied to an employer. You can set up an IRA with a bank, a life insurance company, or a brokerage.

There are two types of IRAs: Traditional IRAs and Roth IRAs. The former is tax-deferred, while the other is tax-exempt.

Traditional IRA

With a traditional IRA, you put pretax money into a retirement account. You pay income taxes on withdrawals later. How much income tax you pay depends on your tax rate when you withdraw the money after age 59 ½.

With a traditional IRA, you can contribute as much as $6,000 a year, as of 2021. That amount goes up to $7,000 if you are 50 or older.

However, these contributions are not always tax-deductible. The tax deduction is reduced or eliminated if you or your spouse also have a 401(k) plan at work, or if you reach a certain income threshold.

Roth IRA

A Roth IRA is a retirement savings account that lets you contribute money after you’ve paid tax on it, not before. That is, you pay income tax on contributions when they’re made, not when they’re withdrawn in retirement.  

The maximum amount you can contribute to a Roth IRA is also $6,000 a year, and $7,000 for those 50 and older, as of 2021. However, if you file as an individual and have an adjusted gross income of more than $125,000 but less than $140,000, the amount you can contribute is reduced, as of 2021.

  1. Annuities

An annuity is a contract between you and an insurer or a financial institution. You pay a lump sum upfront or make monthly payments, and the annuity provider invests the money and pays you back when you retire.

In your contract, you decide how you want your money invested–in stocks, bonds, exchange-traded funds, or other investment vehicles–and when you want to start collecting repayments. You can also choose to receive the money in lump sums or in regular monthly payments. Those payments continue over a period of time or until you die.

The period when you’re paying into an annuity is called the accumulation phase. The date when you start to receive payments is called the payout phase. You have no tax obligation on an annuity until the payout phase, or when you take a lump sum. Then, it’s taxed at your regular income tax rate.

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

Get Started

The importance of tax-deferred accounts

Tax-deferred accounts offer two major benefits: They can lower the amount of taxes you pay in the present and allow you to invest pre-tax money for retirement. While there are no truly tax-free retirement accounts, investing pre-tax dollars for retirement and deferring taxes until you withdraw is one strategy for saving for the future.


Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

Three Things, a newsletter from Titan

Stay informed on the most impactful business and financial news with analysis from our team.

You might also like

How to Decide When to Retire In Five Easy Steps

The time to retire depends on the person, with proper planning you can align health needs and lifestyle with adequate financial support. Here's what you need to know.

Read More

How to Take Penalty-Free Withdrawals From Your Retirement Account

Withdrawing retirement savings before retirement age usually will trigger an early withdrawal penalty. Learn about a few exceptions that may not apply to this case.

Read More

Understanding the SECURE Act Basics

Enacted on January 1, 2020, by then-president Donald Trump, the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 is one of the largest retirement reforms of this generation.

Read More

How Much Do I Need to Retire at 65?

How much investors need to retire at 65 will vary by individual. Knowing living expenses, and how to track progress may help them reach their savings goals.

Read More

Cash Management

Smart Cash

Smart Cash FAQs

Cash Options

Get Smart Cash


© Copyright 2024 Titan Global Capital Management USA LLC. All Rights Reserved.

Titan Global Capital Management USA LLC ("Titan") is an investment adviser registered with the Securities and Exchange Commission (“SEC”). By using this website, you accept and agree to Titan’s Terms of Use and Privacy Policy. Titan’s investment advisory services are available only to residents of the United States in jurisdictions where Titan is registered. Nothing on this website should be considered an offer, solicitation of an offer, or advice to buy or sell securities or investment products. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections are hypothetical in nature and may not reflect actual future performance. Account holdings and other information provided are for illustrative purposes only and are not to be considered investment recommendations. The content on this website is for informational purposes only and does not constitute a comprehensive description of Titan’s investment advisory services.

Please refer to Titan's Program Brochure for important additional information. Certain investments are not suitable for all investors. Before investing, you should consider your investment objectives and any fees charged by Titan. The rate of return on investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested, including principal. Brokerage services are provided to Titan Clients by Titan Global Technologies LLC and Apex Clearing Corporation, both registered broker-dealers and members of FINRA/SIPC. For more information, visit our disclosures page. You may check the background of these firms by visiting FINRA's BrokerCheck.

Various Registered Investment Company products (“Third Party Funds”) offered by third party fund families and investment companies are made available on the platform. Some of these Third Party Funds are offered through Titan Global Technologies LLC. Other Third Party Funds are offered to advisory clients by Titan. Before investing in such Third Party Funds you should consult the specific supplemental information available for each product. Please refer to Titan's Program Brochure for important additional information. Certain Third Party Funds that are available on Titan’s platform are interval funds. Investments in interval funds are highly speculative and subject to a lack of liquidity that is generally available in other types of investments. Actual investment return and principal value is likely to fluctuate and may depreciate in value when redeemed. Liquidity and distributions are not guaranteed, and are subject to availability at the discretion of the Third Party Fund.

The cash sweep program is made available in coordination with Apex Clearing Corporation through Titan Global Technologies LLC. Please visit for applicable terms and conditions and important disclosures.

Cryptocurrency advisory services are provided by Titan.

Information provided by Titan Support is for informational and general educational purposes only and is not investment or financial advice.

Contact Titan at 508 LaGuardia Place NY, NY 10012.