Postpone Your Income

axes. And when you eventually report the income, you may be in a lower income tax bracket. Certain retirement plans can help you postpone the payment of taxes on your earned income. With a 401(k) plan, for example, you contribute part of your salary to the plan, paying income tax only when you withdraw money from the plan (withdrawals before age 59½ may be subject to a 10 percent penalty). This allows you to postpone the taxation of part of your salary and take advantage of the tax-deferred growth in your investment earnings. There are many other ways to postpone your taxable income. For instance, you can contribute to a traditional IRA, buy permanent life insurance (the cash value part grows tax-deferred), or invest in certain savings bonds. You may want to speak with a tax professional about your tax planning options.