Deferred Account

AAA

DEFINITION of 'Deferred Account'

An account that postpones tax liabilities until a future date. A deferred account refers to one where there is a deferral of tax, usually in accounts specifically designed for retirement, such as an Individual Retirement Account (IRA) in the U.S. Deferred accounts have proved to be enormously popular since their introduction, especially as fewer companies offer pensions and the burden of saving for retirement has shifted to individuals.

INVESTOPEDIA EXPLAINS 'Deferred Account'

The rationale behind deferred accounts is that they facilitate saving for retirement by enabling investments to grow tax-free until withdrawal. This tax-free compounding effect may generally enable investments in deferred accounts to grow faster than in taxable accounts. Another benefit of deferred accounts is that investments are only taxed upon withdrawal, which is usually assumed to be at retirement, when the contributor is presumably in a lower tax bracket.

VIDEO

RELATED TERMS
  1. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  2. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  3. Deferred Income Tax

    A liability recorded on the balance sheet that results from income ...
  4. Roth IRA

    An individual retirement plan that bears many similarities to ...
  5. Registered Retirement Savings Plan ...

    A legal trust registered with the Canada Revenue Agency and used ...
  6. Simplified Employee Pension - SEP ...

    A retirement plan that an employer or self-employed individuals ...
Related Articles
  1. Tips On How To Use IRAs To Boost Retirement ...
    Retirement

    Tips On How To Use IRAs To Boost Retirement ...

  2. Will Your Retirement Income Be Enough?
    Retirement

    Will Your Retirement Income Be Enough?

  3. Roth IRA Vs. Traditional IRA
    Taxes

    Roth IRA Vs. Traditional IRA

  4. An Introduction To Correcting Ineligible ...
    Taxes

    An Introduction To Correcting Ineligible ...

comments powered by Disqus
Hot Definitions
  1. 80-10-10 Mortgage

    A mortgage transaction in which a first and second mortgage are simultaneously originated. The first position lien has an ...
  2. Passive ETF

    One of two types of exchange-traded funds (ETFs) available for investors. Passive ETFs are index funds that track a specific ...
  3. Walras' Law

    An economics law that suggests that the existence of excess supply in one market must be matched by excess demand in another ...
  4. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  5. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  6. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
Trading Center