Tax Deferral

Postponing tax on money until a later year rather than avoiding it.

Tax deferral lets an amount compound before being taxed, which is valuable because returns accumulate on the full balance instead of the after-tax remainder. Retirement accounts are the common vehicle: contributions and gains go untaxed until withdrawal, when they are taxed as income. The benefit shrinks if the future tax rate turns out to be higher than today's.

The retirement account offered tax deferral, so nothing was owed on the gains until he withdrew them.