Hi - When is a tax exempt acount more beneficial than a tax deferred account? Is it purely a function of if you think future taxes are going to be higher or is it more complex than that?
thanks
I think the answer to this is contingent on the investor being in a progressive tax regime and earning little now but expecting to earn a lot in the future. In that circumstance which of the two acounts would be more beneficial and why?
Tax exempt is beneficial if current taxes are low.
Tax deferred is beneficial if future taxes are low.
If both current and future taxes are same both pay same tax.
okay so that’s what I thought but how does that tie into progressive vs flat tax structure?
Tax exempt and tax deferred account are special purpose accounts with specific taxing criteria. Irrespective of tax structure you should look at an effective tax rate to take the decision.