Tax-deferred account

An account funded with pre-tax money that grows untaxed, with tax paid on withdrawal. It beats a tax-exempt account when the tax rate at withdrawal is lower than the rate today.

Where you will meet it

Tax-deferred account appears in 2 learning outcomes on the CFA syllabus. A few of them:

• Explain and propose retirement wealth planning that takes account of legal, tax and cross-border issues
  CFA Level III · Private Wealth Pathway

  “With a deductible, tax-deferred account, contributions are made pre-tax and withdrawals are taxed: FV = (1 + r)ⁿ × (1 − tₙ).”

• Explain how taxes shape both the choice of asset allocation and the approach to rebalancing
  CFA Level III · Asset Allocation

  “Asset location matters: place tax-inefficient assets such as taxable bonds in tax-deferred accounts, and tax-efficient assets in taxable accounts.”

See also

Tax-exempt account

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

All terms beginning with T · Glossary