Definition of Tax-Deferred Saving Plan

An account in which a tax-payer/account-holder can postpone paying the taxes on the amount he/she has in account. Tax-deferred savings plans allow a person to use the taxes which would have gone to the government for investing.

Explanation of Tax-Deferred Saving Plan

A most common example of tax-deferred savings plan is 401(k) plan; plan holder can buy investments within the account with money that has not been taxed so far. The investor is only supposed to pay taxes once he/she start taking money out of the account.

Another way is to use a tax deferred annuity which is an investment that allows a person to accumulate tax deferred savings. Tax deferred annuities can be fixed, offering a guaranteed rate, or variable, allowing a person to choose from a variety of investments.