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 Schedule a time to chat with Mike: For more information, please visit us online at Subscribe and listen to our podcast, Your Life, Simplified Apple Podcasts - Spotify - CONNECT WITH US ON SOCIAL LinkedIn - Facebook - Twitter - Instagram - =================================================================================== 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. Disclosures: ...(read more)
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Deferred Compensation: How They Work, Benefits, Risks Deferred compensation is a form of compensation in which an employee's earnings are set aside to be paid at a later date, usually after retirement. This unique method of payment can provide several benefits but also carries certain risks that need to be carefully considered. How do Deferred Compensation Plans Work? Deferred compensation plans are created by employers to help employees save for retirement or other future financial needs. These plans allow employees to defer a portion of their salary or bonus and have it paid out at a later time. The deferred amount is invested and grows over time, providing the employee with additional income in the future. Benefits of Deferred Compensation Plans 1. Tax advantages: Deferred compensation plans offer tax advantages for both employers and employees. Employees can defer income tax on the portion of their salary they choose to defer until it is paid out. Employers can also receive deductions on their corporate tax returns for the contributions they make to these plans. 2. Supplement retirement savings: These plans provide employees with an opportunity to supplement their retirement savings beyond what they can contribute to a traditional retirement account, such as a 401(k) or IRA. This additional income can be crucial in ensuring a comfortable retirement. 3. Flexibility: Deferred compensation plans typically offer flexibility in terms of payout options. Employees can choose when and how they want to receive the deferred amount, allowing them to customize their withdrawals based on their financial needs. Risks Associated with Deferred Compensation Plans 1. Employer risk: Deferred compensation plans are subject to the financial stability and solvency of the employer. If the employer faces financial difficulties or goes bankrupt, employees may lose their deferred amounts. It is crucial to assess the financial health and reputation of the employer before participating in such plans. 2. Lack of liquidity: Deferred compensation plans involve locking away a portion of an employee's income for a certain period of time. This lack of liquidity can be challenging if the employee faces unexpected financial obligations during that period. 3. Changes in tax laws: Tax laws can change over time, potentially affecting the tax advantages associated with these plans. It is important for employees to stay updated on any tax law revisions and evaluate the impact on their deferred compensation plans. In conclusion, deferred compensation plans offer attractive benefits, including tax advantages and the ability to supplement retirement savings. However, it is essential to carefully evaluate the risks, such as employer risk and lack of liquidity, before committing to such plans. Consulting with a financial advisor can help individuals make informed decisions based on their specific circumstances and goals. https://inflationprotection.org/understanding-deferred-compensation-mechanics-advantages-and-potential-pitfalls/?feed_id=119036&_unique_id=64b8590de8d32 #Inflation #Retirement #GoldIRA #Wealth #Investing #financialplanning #401k #403b #annuities #compensationplans #DeferredComp #deferredcompensation #Employeebenefits #ExecutiveBenefits #highlycompensatedemployees #investing #Mariner #MarinerWealthAdvisors #Markets #MWA #nonqualifiedplans #Retirement #retirementplanning #retirementsavings #socialsecurity #taxdeferral #totalcompensation #QualifiedRetirementPlan #financialplanning #401k #403b #annuities #compensationplans #DeferredComp #deferredcompensation #Employeebenefits #ExecutiveBenefits #highlycompensatedemployees #investing #Mariner #MarinerWealthAdvisors #Markets #MWA #nonqualifiedplans #Retirement #retirementplanning #retirementsavings #socialsecurity #taxdeferral #totalcompensation
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