Tax-Deferred Savings Plan provides deferral of tax obligations. The plan is registered with the government and allows an individual to set aside a portion of current income in a designated account, and defer payment of income taxes on principal amount and earned interest. All profits within the account, including interest, dividends and capital gains, are taxed only upon withdrawal.
This plan allows the participants to use the taxes for investing until withdrawal.
Additional meaning of Tax-Deferred Savings Plan:
Tax-Deferred Savings Plans are commonly used in retirement savings accounts such as 401(k)s, IRAs, and Registered Retirement Savings Plan (RRSPs). They are also found in education savings plans and other savings plan accounts.