Tax-Free vs. Tax-Deferred?

Both plans have $25,000 in an account Tax-free: the account pays 5%, compounded annually. There is no income tax on the earned interest. Tax-deferred: account pays 7%, compounded annually. At maturity the earned interest is taxable at a rate of 40% Which is better and why? An example of how to do both... show more Both plans have $25,000 in an account

Tax-free: the account pays 5%, compounded annually. There is no income tax on the earned interest.

Tax-deferred: account pays 7%, compounded annually. At maturity the earned interest is taxable at a rate of 40%

Which is better and why? An example of how to do both would be helpful.
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