Deferring taxes is the kind of investment strategy that can be carried out on your income, by which your income tax is paid later in exchange for money invested currently. The advantage of tax deferral is that you get to make more money which you can in turn invest immediately.

For example, you are able to deduct $1000 from your taxable income this year and invest it into an interest bearing account, and in return, this deduction allows you to pay approximately $200 less in income taxes for the current year. You now have $200 more than if you had not invested the $1000. If you add the $200 you deferred in taxes to the $1000 you have already invested, you now have $1200 growing in your investment.

Another type of tax deferral used by investors is the deferment of taxes paid on interest earned. The dollars invested have already been taxed, but any interest earned is tax free.

The accounts for the tax deferred amount that you create will be safe from being taxed till a later stage in your life when you start withdrawing money from that account, at a time when you fall under a lower tax bracket. The Investment Vehicle or plan that you select must be chosen with care and depends on your unique situation.

You could opt for the plan 401(k). This vehicle is open for you only if your employer offers it. This will allow you to make contributions that are deductible by tax but grow as deferred tax until you start withdrawing the money. Depending on your employer, your 401(k) might come with a bonus, when your employers add to your contributions, doubling it. You could make anywhere between 25%-100% on your contributions, if your employer adds to it.

A 401 (k) allows you to contribute much more per year than many of the other retirement plans. You can contribute up to $9,500 to your 401 (k) per year and your employer can contribute up to $30,000 per year. You can also have your bonuses issued as 401 (k) contributions to build your retirement wealth even faster. If you ever leave your employer or wish to have more freedom with your 401 (k) investments, you can always rollover the assets in your account into an IRA.

The 401(k) is the best suited plan for somebody who is new at investing or does not know what kind of stocks to invest in.

Another type of plan offered by an employer is the 403 (b). This plan is for public school and non-profit organization employees and it is tax deductible and tax deferred. You can contribute up to $9,500 of your annual gross income each year to this plan.

With 403 (b) plans, beware of a few cautions. Your contributions are generally invested in a tax-sheltered annuity, which may have heavy sales charges and low guaranteed rates.

Any person who has an earned income or the spouse of somebody who has an earned income can open their own IRA and add up to $2000 to it yearly. The earnings are not subjected to tax unless you start withdrawing from the account, but you will be charged penalty if you start withdrawing before the age of 59 and a half. However, even if your money is not tax deductible, they will be tax deferred.

There are different kinds of investment that you could make with your IRA, but that depends on the custodian. However it is with the IRA that you will have most options compared to the other employer sponsored schemes.

The Keough Plan is open to people who are self employed or who work for unincorporated businesses. By this plan you can contribute up to 25% of your income every year with a maximum of $30,000. All the contributions become tax deductible and your earnings tax deferred. You can contribute more with this plan than with an IRA plan. There are three types of Keough plans, whereby you can contribute a fixed percent every year, or a variable percent or a fixed amount according to you every year. A lawyer can best assist you in setting this up.

A SEP, or a Simplified Employee Plan is easier to set up than a Keough allows you to deduct 15% of your self-employment income, to a maximum of $30,000. As an employee, you can contribute up to $7000 per year to your SEP, and your employer can contribute the rest. SEP plans are only available to companies with 25 or fewer employees, and at least half of those employees must participate in the plan.

All the above described investment vehicles fall under one of these two categories: Qualified or Non – Qualified plans.

The 401 (k) and 403 (b) plans are qualified plans. Qualified plans are employer-sponsored plans that provide good benefits but that are restricted to the types of investment options offered by the employer. As we already mentioned, 403 (b) plans often require you to invest your money in tax sheltered annuities. 401 (k) plans generally offer a broader range of conventional investment options, but still seem very limited when compared to non-qualified plans. You usually get to select from a preset choice of investment options such as fixed interest annuities, money market funds, stock in your company, and other traditional investments.

The second category of retirement plans is nonqualified plans. Nonqualified plans generally allow more freedom as to when, or if, a contribution has to be made, and they also offer more latitude in the type of investments that can be made. All IRAs fall into this category. Generally, investors have more control over their investments in a nonqualified plan than with a qualified one. Usually they are easier to work with, have less regulation, and require less reporting. Often, contributions to these plans can be deducted as a business expense.

There are also two asset categories, in which all the above vehicle fall into: debt and equity. If you are an investor, you are either the owner or the creditor. Equity owners are available for all the free money flow which exceeds the debt to be paid of the underlying economic body. Creditors will of course be high on priority where agreed upon future interest or the payment of principles is concerned.

When choosing a retirement plan, you want to be certain of the types of investments permitted with your plan. Do not open an account that does not give you the freedom to choose your own investment options, whether they are debt or equity investments.