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Explain the difference between tax free and tax deferred investment vehicles.

Explain the difference between tax free and tax deferred investment vehicles.

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In tax free investment vehicles, the amount of contributions made today are not deductible from taxable income. However, the withdrawals made at maturity are tax-free. Effectively, the tax is paid at the time of investment, and the returns earned are tax-free.

In tax-deferred investment vehicles, the amount of contributions made today are deductible from taxable income. However, the withdrawals made at maturity are taxable. Effectively, the tax is paid at the time of maturity and not at the time of investment. Hence they are called "tax-deferred" investment vehicles

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