Deferred Compensation Plan Vs 401k In Arizona
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US-00418BG
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Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a date after which the income is actually earned. A Deferred Compensation Agreement is a contractual agreement in which an employee (or independent contractor) agrees to be paid in a future year for services rendered. Deferred compensation payments generally commence upon termination of employment (e.g., retirement) or death or disability before retirement. These agreements are often geared toward anticipated retirement in order to provide cash payments to the retiree and to defer taxation to a year when the recipient is in a lower bracket. Although the employer's contractual obligation to pay the deferred compensation is typically unsecured, the obligation still constitutes a contractual promise.
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Deferred compensation plans tend to offer better investment options than most 401(k) plans, but are at a disadvantage regarding liquidity. Your ASRS pension plan is a 401(a) Defined Benefit plan, while a 401(k) is classified as a Defined Contribution plan.457(b) plans and 401(k) plans are very similar. Both offer you the opportunity to make tax-deferred contributions to a retirement account. One major difference is that currently 457 plans are designed for public sector employees, and 401(k) plans are designed for private sector employees. There are differences between deferred compensation plans, individual retirement accounts, and qualified plans, including fees and when you can access funds. This article focuses on a comparison of accumulations in and distributions from 457 government plans and 401(k) plans and on other closely related matters. Deferred compensation refers to money received in one year for work performed in a previous year often many years earlier.