BRIDGEPORT, W.Va (WDTV) - Question: "My adviser has talked to me about tax deferring my earnings. I have heard you talk about tax free. What is the difference between tax deferred and tax free?"
Answer: (John Halterman, Beacon Wealth Management) "I think it's confusing from a client standpoint because lets face it, taxes can be very confusing. The key difference is the word yet. What I mean about that is, tax deferred means that you're going to defer your taxes as you're earning money so that you don't pay any taxes on it, until you take a distribution. At that point that's when you start paying taxes on it. But all along the way you did have the advantage of compound interest without taxation.
"Tax free is totally different. What tax free basically means is that, such as a Roth IRA, is that your money grows tax deferred. Then when you go to take distributions, it's going to be 100 percent tax free.
"So the difference is basically tax deferred products are things such as annuities. Which defer your taxes along the way. But you will pay the taxes eventually and then tax free is the ability to tax defer and get a tax free after retirement. So that;s the difference between the two."