Tax Deferral

The Tax Deferral calculator demonstrates the effect of tax deferral savings on four different savings methods.

Note: | This calculator does not consider product fees, product expenses, or product withdrawal charges that might impact the final results. It assumes the same hypothetical interest rate for each account. Therefore, the final result is based only on the effect of taxation as it is applied to each account. |

The Quick Config button at the top of the input () determines which tax account types are visible. The options include:

1.After tax investment and tax deferred growth

2.After tax investment (such as a CD)

3.After tax investment and tax free growth (such as a Roth IRA)

4.Pre-tax investment and tax deferred growth (such as a 401(k) or 403(b))

Each of the prompts are discussed below:

Type of Deposits

Select from the menu by clicking the down arrow.

# of Years

Enter how many years you want to illustrate.

The next prompt will depend upon the type of deposits chosen:

# of Deposits per Year or Paychecks per Year

Choose the number of deposits per year for level deposits or annually increasing deposits. Choose the number of paychecks per year if % of Paycheck is the type of deposits.

Amount of Each Deposit

Enter the after-tax deposit/paycheck amount per period.

Deposits made at

Choose Beginning of Period or End of Period.

Annual Increase in Deposit

If the type of deposits chosen is Annually Increase, then the Annual Increase in Deposit prompt will be visible. Choose the dollar amount or percent by which the deposits will annually increase.

Annual Increase in Pay

This prompt is only visible if % of Paycheck is chosen for Type of Deposits. Choose the percent that the pay will increase annually.

% of Income to Deposit

This prompt is only visible if % of Paycheck is chosen for Type of Deposits. Choose the percent of each paycheck to be invested.

Marginal Tax Rate

Enter the tax rate for the individual.

Interest Rate

The maximum rate you can enter is 12% for a hypothetical illustration.

There are three types of accounts illustrated in the Tax Deferral calculator shown on the right.

Each type of account is discussed below:

The interest is taxed at the marginal tax rate just like a savings account or CD.

The tax on the interest is deferred until money is taken out of the account. For illustration purposes, a 100% surrender is assumed in order to illustrate the difference in account buildup and the resulting taxation.

The value for Amount of Each Deposit is considered an after tax contribution, and therefore, is grossed up by the tax bracket. (The effect on spendable income is the same as saving after tax, but the individual receives the added benefit of interest earnings on the taxes that would have been paid earlier.) In addition, the interest earned is not taxed until the account is surrendered. This further compounds the effect of tax deferral.

The values are also illustrated in a graphical view on 2 tabs described below:

This line graph highlights accumulation over time. This corresponds to the tax bracket values entered for both accumulation and distribution time periods.

This bar graph illustrates the impact of account values for pre-tax and after-tax investments. This corresponds to the tax bracket values entered for both accumulation and distribution time periods.