Which term describes tax treatment that defers taxes on investment growth until withdrawal?

Which term describes tax treatment that defers taxes on investment growth until withdrawal?

• A. Favorable tax treatment
• B. Liquidation of an estate
• C. Life-income option
• D. Fixed-period installments

Answer: (A)

Deferring taxes on investment growth until withdrawal is tax deferral, a favorable tax treatment that lets earnings accumulate without being taxed annually. The growth compounds because you don’t pay taxes on the gains each year; taxes are paid only when you take money out, often in retirement, which can boost overall after-tax growth. Among the options, the phrase that best captures this benefit is favorable tax treatment, since it refers to tax rules that provide an advantage. The other terms describe unrelated ideas: liquidating an estate involves distributing assets after death, a life-income option pertains to how funds are paid out as income, and fixed-period installments describe a specific payout schedule rather than tax timing.

Deferring taxes on investment growth until withdrawal is tax deferral, a favorable tax treatment that lets earnings accumulate without being taxed annually. The growth compounds because you don’t pay taxes on the gains each year; taxes are paid only when you take money out, often in retirement, which can boost overall after-tax growth. Among the options, the phrase that best captures this benefit is favorable tax treatment, since it refers to tax rules that provide an advantage. The other terms describe unrelated ideas: liquidating an estate involves distributing assets after death, a life-income option pertains to how funds are paid out as income, and fixed-period installments describe a specific payout schedule rather than tax timing.