September 19, 2017

Tax-Deferred Structured Settlements

What Does Tax-Deferred Mean?
When an amount of money is tax-deferred, any taxes that accumulate on gains resulting from the investment are deferred (to be paid at a future date). Interest, dividends and capital gains are considered investment earnings and remain tax-deferred until the investor decides to withdraw either a portion or the whole accumulated value. Tax-deferral greatly benefits the investor because the investment grows unhindered, since taxes are paid at a later date.

The most common types of tax-deferred investments include those in individual retirement accounts (IRAs) and deferred annuities. Since investments are usually made when an individual has a higher income and withdrawals are made from an investment when a person is earning little, tax-deferral is the optimum choice. Individuals with higher incomes are taxed at higher rates and people with low incomes lie in a lower tax bracket. Therefore, if you were to withdraw your money, say after you retire, that money may be taxed at a lower rate. Tax-Deferred Structured Settlements can be used in a variety of cases involving employment cases, divorce settlements, structured attorney fees and other taxable settlements. Personal physical injuries are tax-free while non-physical injuries are either partially or fully taxable.

 

What Does Tax-Free Mean?
When an amount is tax-free it is not subject to taxation (tax-exempt) and thus no taxes ever have to be paid on that amount. This grants major benefits for potential taxpayers because it relieves them from the burden of paying any taxes that would usually accumulate. Advantages of Structured Settlements are not only limited to taxes but also to the financial confidence and long-term benefits they provide. Utilizing structures allows for the resolution of any disputes before trial (thus limiting litigation costs), periodic payment plans, tax savings, transfer of investment risks and reassurance that your money will be placed only in highly rated insurance companies.