Deferred Compensation Plan Vs 401k In Virginia
Category:
State:
Multi-State
Control #:
US-00418BG
Format:
Word;
Rich Text
Instant download
Description
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.
Free preview
Form popularity
More info
Deferred compensation plans tend to offer better investment options than most 401(k) plans, but are at a disadvantage regarding liquidity. 401(k)s and 457(b)s are both taxdeferred retirement plans.In addition, there are some limitations to NQDC plans compared with qualified retirement plans such as 401(k)s. The maximum you can contribute is up to 100 percent of includible compensation. A 457(b) plan is a tax-deferred retirement savings plan. Funds are withdrawn from an employee's income without being taxed and are only taxed upon withdrawal.