Think: Deferred-tax Account.
Why is it that people in the movies never have to deal with mundane things like budgeting savings for an IRA or for a 529 account? Characters almost always have unlimited money in mansion-like homes with no visible income after they retire. None of the kids in any of the college movies ever mentions a 529 account paying for all or part of tuition. Such is yet another area where Hollywood is detached from reality.
In order to encourage savings, the tax code provides for investments for retirement, education, and health. The accounts that we mere mortals use to administer these savings investments are called deferred accounts, since they are allowed to be tax-deferred until such time as when funds are drawn down.
The IRS, in its generosity, will allow us to escape tax payments on the money so that it can grow larger (and hope to outstrip inflation) with the extra portion...ostensibly to have a bigger pie to tax from down the road.
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Finance: What is Deferred Compensation?8 Views
Finance allah shmoop what is deferred compensation Well you don't
get it today You get it next year at some
point you know differed If you've gotten paid today it
would have binford but then it was deford's so well
yeah it's money you don't get right now Yeah so
whywould compensation be deferred Well lotsa reasons think about a
bonus that a sales person might earn through out the
year like they get two grand in bonus money payable
next year for each month that they sell over four
pounds of yellowcake uranium powder Bob here did it in
january messed around in february and march and was a
good boy in april may and june and then on
lee hit one more sales goal ahead of christmas doing
four pounds in uzbekistanian november So bob had five months
hitting his sales bonus target and we'll have owed to
him ten grand in bonus money e compensation that was
deferred and noting that all bonuses are paid in january
of the following year like it's deferred to the following
year So from the company's perspective they show deferred compensation
as a line item or a thing on their balance
Sheet is a liability And then they converted to being
an expense when they pay everything out the first month
of the next year so come january Bob will be
very happy with his healthy bonus That is you know 00:01:29.357 --> [endTime] assuming he's still around to enjoy it there No
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What does "Tax Deferred" mean? Tax deferred refers to investments in government approved accounts that allow a tax deduction for the contributions...