Postponing taxes until a later date. Investment earnings such as interest, dividends or capital gains that accumulate tax free until the investor withdraws and takes possession of them. The most common types of tax-deferred investments include those in individual retirement accounts (IRAs), 401(k), 403(b), Keogh Plans, pension plans and deferred annuities.
By deferring taxes on the returns of an investment, the investor benefits in two ways. The first benefit is tax-free growth: instead of paying tax on the returns of an investment, tax is paid only at a later date, leaving the investment to grow unhindered. The second benefit of tax deferral is that investments are usually made when a person is earning higher income and is taxed at a higher tax rate. Withdrawals are made from an investment account when a person is earning little or no income and is taxed at a lower rate.
A qualified retirement plan through an employer to which eligible employees can make salary deferral (salary reduction) contributions on a post-tax and/or pre-tax basis.
Employers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis.
Caps placed by the plan and/or IRS regulations usually limit the percentage of salary deferral contributions. There are also restrictions on how and when employees can withdraw these assets, and penalties may apply if the amount is withdrawn while an employee is under the retirement age as defined by the plan.
Outside of business accounting and finance this term simply refers to any money or service that is currently owed to another party. One form of liability, for example, would be the property taxes that a homeowner owes to the municipal government.
Current liabilities are debts payable within one year, while long-term liabilities are debts payable over a longer period.
A resource with economic value that an individual, corporation or country owns or controls with the expectation that it will provide future benefit.
In accounting terms, assets are either current or fixed. Current means that the asset will be consumed within one year (like cash or inventory). Fixed assets are those that are expected to keep providing benefit for more than one year (such as real estate or equipment).
The rise in price of all items and services, resulting in the decrease of the purchasing power of the dollar.
As inflation rises, every dollar will buy a smaller percentage of a good. For example, if the inflation rate is 2%, then a $1 pack of gum will cost $1.02 in a year.
Most countries’ central banks will try to sustain an inflation rate of 2-3%.
When you buy a bond, you’re lending your money to a company or a government entity so it can grow. The company or agency selling the bond promises to pay you interest and to return your money on a date in the future.
APR stands for Annual Percentage Rate. An APR allows you to evaluate the cost of the loan in terms of a percentage. If your loan has a 10% rate, you’ll pay $10 per $100 you borrow annually.