Deferred Compensation: How They Work, Benefits, Risks

The definition of deferred compensation is exactly how it sounds: As an employee, you choose to defer compensation until a later date. This could lead to tax savings, but there are some substantial risks worth talking about. 

When people mention “deferred comp,” they are typically referring to non-qualified deferred compensation plans, not qualified plans, such as 401(k)s, or 403(b)s. First, we will discuss how they work, then we will dive into the benefits, risks and considerations.

With a non-qualified deferred comp plan, you’re given an opportunity once a year to opt into the deferred comp plan and elect how much money you would like to receive at a specified future date or over several specified future dates. Depending on your plan these future dates may be required to pay when you retire or when you leave the company. Often, the employee gets to choose a “distribution date” each year and select the amount of monies they intend to defer, and when they would like to receive those monies.  

It’s important to note that there are some obvious benefits to deferred comp: 
Tax deferral 
Matching opportunities (some companies provide this) 

However, as mentioned, it’s important to cover the risks of deferred comp: 
Investment performance is not guaranteed, for any investment 
Lump Sum of Comp = Lump Sum of Taxes 
The plan is not guaranteed, so if the company can’t make the payment, you don’t have the same protection as qualified accounts

#DeferredCompenasation #DeferredComp

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These videos are limited to the dissemination of general information and are not intended to be legal or investment advice. Nothing herein should be relied upon as such. The views expressed are for informational purposes only and do not take into account any individual personal, financial, or tax considerations. There is no guarantee that any claims made will come to pass.    
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