Deferred Account

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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.

BREAKING DOWN '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.

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RELATED FAQS
  1. Who is eligible to hold a deferred tax asset?

    Find out when U.S. companies are allowed to hold deferred tax assets and report them in the financial statements according ... Read Answer >>
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    Learn about the treatment of deferred tax liabilities under the requirements set forth by the Financial Accounting Standards ... Read Answer >>
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    Find out how the IRS and FASB treat deferred tax assets, which a company can recognize in order to reduce its future tax ... Read Answer >>
  4. Should I put money into a retirement account even if it isn't tax deductible?

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  5. How do I use a conduit IRA?

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  6. What are some examples of ways businesses can use a deferred tax asset?

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