Deferred Compensation Plan

If you have maxed out your workplaces’ 401k plan you may be looking for other ways to save. Some employers may offer a nonqualified deferred compensation plan. They let employees put a portion of their salary into a separate account, usually a trust, where employees can invest the funds. A specific date is set for the deferment to stop, usually in five years, ten years, or retirement.

Often these are utilized by executives as the 401k options do not offer high enough savings for them. The money however, cannot be rolled into an IRA or other retirement account when the payout occurs. In addition, loans cannot be taken out of the account like a 401k.  Unlike a 401k there are no Internal Revenue Code limits, the only limits imposed could come from the plan established or the employer.

These are not protected funds from creditors during bankruptcy. Finally, a company can claim a tax deduction only at the time of distribution or the participant recognizes it as a taxable income.