GLOSSARY TERM
Tax Deferral
Tax deferral means delaying taxes until a later point instead of paying them immediately.
What does this mean in practice?
If tax is postponed, more money may stay invested in the meantime. This can support long-term growth, because a larger amount remains in the market before part of it is reduced by tax. Tax deferral does not mean tax disappears, only that it happens later.
Example
A gain may remain untaxed until the investment is sold, depending on local tax rules and the type of account or fund being used.
Why it matters
Deferring tax can improve compounding because more money stays invested for longer. For long-term investors, timing of tax can matter almost as much as the tax itself.
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