Deferred Compensation Plan: Best Way To Reduce Taxes

When we talk about Deferred Compensation plan we are specifically talking about Non-qualified Deferred Compensation Plan.

Deferred Compensation Plans do not have limits specified by the government. The downside is that ERISA protections are no longer available.

Roth IRA and Deferred Compensation Plan both grow tax free. However, with Roth IRA, you pay taxes now on your contribution.

The Deferred Compensation Plan is offered to a select group of management and highly compensated employees.

What is A Deferred Compensation Plan?

How does Deferred Compensation Plan work?

The Plan provides eligible employees the opportunity to save on a before-tax basis. By making deferrals under the Plan, you avoid paying current federal income taxes on the income you defer.

If you are newly hired, promoted, or otherwise become eligible to participate in the Plan after January 1st of a given year, your eligibility to participate in the Plan will be evaluated on the first day of the following month.

If you fail to make a Compensation Deferral election within this initial 30 day enrollment period, you cannot elect to defer Compensation until the following Plan Year.

The salary or bonus you defer can be invested. Often, the same plan options which are in your 401(k) plan are available to invest your Deferred Compensation Plan contributions.

In order to achieve the favorable tax treatment provided by the Plan, benefits under the Plan are payable from the general corporate assets of your Employer.

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