The net income you receive from all sources is affected by the amount which must be paid in taxes. The tax laws provide several ways to do this save on a tax deferred basis, i.e., without paying income taxes on the dollars to be saved before they become available for investment. The advantage offered by tax deferred saving is shown here. Taxes impact both the amount a worker can afford save and the effective return on investment. The advantage of deferring taxes is real even if the deferral is for only one year.

The figures shown assume a 30% tax bracket. The advantage shown here is solely the result of postponing the timing of tax payment. The differential in retirement income by saving tax deferred would be even larger if for persons whose tax rate may be reduced at retirement. The only time when a extra care must be taken in analyzing the value of tax-deferred investment is when tax brackets are expected to be higher after retirement.

This is a hypothetical illustration and is not intended to reflect the actual performance of any particular security. Results will vary and cannot be guaranteed.