deferred compensation

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prk
Posts: 86
Joined: Wed Jul 09, 2008 1:39 pm

deferred compensation

Post by prk » Fri Sep 28, 2012 12:15 pm

I can now defer approx 10% of my compensation in a tax sheltered account. This is addition to any 401k and IRA contributions. Because it is defered, so are the taxes.

Any down side to this?

Default User BR
Posts: 7501
Joined: Mon Dec 17, 2007 7:32 pm

Re: deferred compensation

Post by Default User BR » Fri Sep 28, 2012 1:37 pm

prk wrote:I can now defer approx 10% of my compensation in a tax sheltered account. This is addition to any 401k and IRA contributions. Because it is defered, so are the taxes.

Any down side to this?
We need more details. Is this a 457? What are the distribution rules if you leave the job? One of the problems with many such plans is that the money isn't yours, because you elected not to take if yet. If the company goes under or is sued, you might lose some or all. Again, the devil is in the details.


Brian

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mhc
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Location: NoCo

Re: deferred compensation

Post by mhc » Fri Sep 28, 2012 2:29 pm

If you are young, the deferral could be longer, which would increase risk.

Your marginal tax rate also matters. The benefits increase with increasing marginal tax rates.

I defer a large chunk, but I believe that my company is stable enough based on how long I will defer my compensation. Plus my marginal tax rate is currently very high.

Also, how are your investment choices?

The deferral rules can be tricky to manage. If you elect to defer some of your pay, you need to have a strategy for:
1. leaving the company
2. retiring
3. if the company starts going downhill

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mas
Posts: 1461
Joined: Tue Feb 20, 2007 12:54 pm

Re: deferred compensation

Post by mas » Fri Sep 28, 2012 4:10 pm

These plans can vary considerably, and go under a few nicknames like "Top hat" plans, "Rabbi trust", etc... depending on the particulars. The risks noted by previous posters are certainly important.

More info here:
http://en.wikipedia.org/wiki/Nonqualifi ... mpensation
http://www.bogleheads.org/wiki/Employer ... ation_Plan
https://www.google.com/search?sitesearc ... nsation%22

jebmke
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Location: Delmarva Peninsula

Re: deferred compensation

Post by jebmke » Fri Sep 28, 2012 4:23 pm

You really have to get ahold of a copy of the plan document. When I was offered a chance to defer my bonus, I decided against it. I was already concentrated with my job and stock options. The deferred bonus plan would have added additional concentration of risk with the company since I would have become a general creditor.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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