What is the main benefit of a tax-deferred IRA account?

The main benefit of a tax-deferred IRA account is that investment income is not taxed until withdrawal. This means that any earnings from investments within the IRA can grow without being subject to taxes annually. This tax deferral allows for compound growth over time, as the account holder does not have to pay taxes on interest, dividends, or capital gains generated by the investments while they remain in the account. When funds are eventually withdrawn, typically during retirement, they are then taxed as ordinary income. This strategy can potentially result in a lower overall tax burden if the individual is in a lower tax bracket during retirement compared to their working years.

While immediate tax deductions on contributions do apply to traditional IRAs, they are not the primary benefit of the account structure itself. Taxation of investment income immediately would negate the advantages of using an IRA for long-term savings. Furthermore, while there may be no minimum contribution requirements in certain circumstances, the option of no required contributions does not capture the essence of the tax-deferred growth benefit, which is fundamental to the appeal of IRA accounts.