8. Why would a tax-deferred account normally accumulate more funds over time than an otherwise identical
account that is subject to current income taxation?
a. Tax-deferred accounts are credited with higher levels of interest.
b. Withdrawals of gain from tax-deferred accounts are taxed at favorable capital gains rates.
Oc. Only 80 percent of gain received from tax-deferred accounts is subject to taxation.
od. Funds that would have been withdrawn in a currently taxed account to pay taxes are able to remain in
the tax-deferred account to earn additional interest.
"
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7:13 PM
5/1/2024

Question

01-05-2024
Mathematics

Answered

8. Why would a tax-deferred account normally accumulate more funds over time than an otherwise identical
account that is subject to current income taxation?
a. Tax-deferred accounts are credited with higher levels of interest.
b. Withdrawals of gain from tax-deferred accounts are taxed at favorable capital gains rates.
Oc. Only 80 percent of gain received from tax-deferred accounts is subject to taxation.
od. Funds that would have been withdrawn in a currently taxed account to pay taxes are able to remain in
the tax-deferred account to earn additional interest.
"
Q Search
7:13 PM
5/1/2024

Answer :

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GinnyAnswer GinnyAnswer · Answer 1 · 2024-05-01T19:13:34-04:00

In a tax-deferred account, funds can grow more over time compared to an account subject to current income taxation for a few reasons: 1. Funds in a tax-deferred account can accumulate more over time because the taxes on gains are postponed until withdrawal. This means that the money that would have been used to pay taxes in a currently taxed account can remain invested in the tax-deferred account, allowing it to earn additional interest. 2. Withdrawals of gains from tax-deferred accounts may be taxed at more favorable capital gains rates, which can result in higher net returns compared to a currently taxed account where gains are subject to ordinary income tax rates. 3. Tax-deferred accounts may offer the benefit of compounding interest on both the initial investment and any accrued interest, leading to a snowball effect where earnings generate more earnings over time, further boosting the growth of funds within the account.