Deferred Account

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.