Tax-Deferred Investments

with PNC Investments

How It Works

Tax-deferral is a simple way of paying your taxes later rather than paying them now.

Tax-deferred accounts, like IRAs and 401ks, are an important part of any plan that is focused on investing for retirement in a tax-efficient manner. Generally, these types of accounts are funded with pre-tax dollars and grow tax-free until you withdraw the money, which is usually when you reach retirement age.

There are a few things that are generally true when looking at a tax-deferred account:

  • Money goes into the accounts pre-tax and decreases an individual's taxable income.
  • Funds cannot be taken out until a certain age is reached.
  • There are penalties for early withdrawals.
  • The accounts are especially useful when holding funds that generate a lot of gains, like actively managed mutual funds, or a lot of income, such as REITs.

Tax-Deferred Account Options

Tax-deferred accounts include:

These accounts can be opened by an individual to help with investing for retirement. The accounts grow tax-free until the account owner turns 73 years old at which point they will need to begin taking required minimum distributions. The distributions will be taxed as income when they come out of the account. The account owner does not need to wait until they are 73 to begin taking distributions though and can begin taking distributions form the account at 59 ½ years old. Any distributions taken before then will be subject to early withdrawal penalties.

Much like an IRA an annuity can allow for taxes to be deferred until the money is withdrawn, generally with the intention that it will be for retirement income. Annuities differ from IRAs in some key ways though, with a main difference being that annuities allow for more flexibility. Annuities can provide different types of cashflows, provide death benefits, provide cashflow to beneficiaries after the death of the annuitant, and have several other types of features added on as well.

529 Plans are a tax-deferred strategy for funding your children’s college tuition. They are another way to gain tax-deferred growth and the potential for tax-free distributions for qualified educational expenses (though contributions to a 529 plan are generally made with after-tax dollars).

These accounts have some similarities with Traditional IRAs but are sponsored by an individual’s employer. These accounts will also grow tax-free until distributions are taken, and required distributions start at age 73. The distributions that come out of the account will be taxed as income when they are taken. There is also a penalty on any distributions taken before 59 ½.

HSAs stand out as being somewhat different from other tax-deferred accounts as their intended purpose is not for retirement purposes but is instead focused on saving for medical expenses.

Working with PNC Investments

Neither PNC Investments nor your Financial Advisor provide tax advice. You should review your tax situation with your own independent tax professional to fully evaluate how you may benefit.



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