What Is Tax-Deferred Growth?

By Jeremy Bowman – Updated Oct 19, 2025 at 9:11 PM EST

Key Points

Most U.S. income is taxable, but retirement accounts allow tax-deferred growth.
401(k) and IRA plans defer taxes on gains, potentially increasing your investment returns.
Investing strategies like 1031 exchanges in real estate also offer tax deferment benefits.
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Most income in the U.S. is taxable. Whether you earn money from your job, capital gains or dividend income from your stock and bond portfolio, or even rent from an investment property, you likely have to pay tax on the income.

However, not all gains are taxable. If you invest in retirement accounts and certain other brokerage accounts, you can benefit from tax-deferred growth. Keep reading to learn more about tax-deferred growth and how you can take advantage of it.

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An alarm clock resting atop little wooden blocks that spell out TAX and sitting on a desk with books and a calculator. — Image source: Getty Images.

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Another source of tax-deferred growth is annuities, which are contracts between you and an insurance company that makes payments to you once you fund the annuity. Annuities don't have a contribution limit, making them different from traditional retirement accounts.

You can also benefit from tax-deferred growth in real estate. Real estate investors can defer gains on an investment property sale through a 1031 exchange, which allows for capital gains tax to be deferred as long as a "like-kind" property is being purchased within a certain timeframe. Here, the tax deferment gives the investors more money to put into the next property, allowing for more gains in the long run.

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1031 Exchange

A tax-deferred swap of like-kind properties, allowing real estate investors to defer capital gains taxes on property sales.

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The first year of investments would be worth $23,673. If you sold just those stocks, you would owe $13,673 in capital gains in a taxable account.

In a tax-deferred account, you wouldn't have to pay tax on those gains until you withdraw the money (presumably to spend it). And you can control how much you withdraw more easily than how much capital gains you make on your investments.

Tax-deferred growth could be even more valuable in a new bull market as stocks will likely experience above-average growth in an early bull market. Consider your options for tax-deferred growth and find the one that works best for you.

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About the Author

Jeremy Bowman has been a contributing Motley Fool stock market analyst, covering technology, consumer goods, and macroeconomic trends since 2011. Before The Motley Fool, Jeremy was a newspaper reporter, restaurant manager, and English teacher abroad. He holds a bachelor’s degree in English from Colorado College and a master’s degree in business administration from American University. One of his Motley Fool headlines was briefly featured on Late Night with Stephen Colbert.

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