Should you take advantage of a deferred compensation plan?

Monday, July 3, 2017 @ 11:07 AM
Author: Peter Brehm

Deferred compensation plans are a way for highly paid employees to save more money than their 401(k)’s typically allow for.  By deferring earned income, the employee is able to defer taxes until after retirement, when the employee’s tax bracket is more favorable.   This allows for individuals to supplement their income after retirement. The plan, however, comes with risks. While 401(k)’s are protected if the company faces financial struggles, nonqualified deferment plans are not.  If the employer goes bankrupt, the employee becomes an unsecured creditor of the company. Less than 50% of employees enter into this type of deferment plan. Each employer and employee must consider the risks and benefits carefully before establishing a deferred compensation plan.

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