Shade ink in the Deferred Compensation Plan

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Aug 6th, 2022
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How to shade ink in the Deferred Compensation Plan

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Hi, this is Greg Maxwell with Amicus Settlement Planners. Over the past several months, weve spoken with over a hundred personal injury attorneys and contingency fee-based attorneys all over the country about the deferred compensation program that youve likely seen other videos from us talking about, or maybe youve watched the webinar that we produced. And, we get a couple of questions almost on every phone call with attorneys that we talk about. One comment, I guess more than a question, is I wish Id have known about this five or ten or fifteen years ago. And then the question we get is, why havent I heard about this before? So most plaintiff attorneys have heard about structured settlement annuity deferrals for their fees, or structuring their fees. And the reason for that, I think, is because plaintiff attorneys are marketed too heavily by structured settlement annuity brokers. And so, structured settlement annuity brokers have an insurance license and they can sell structu

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Below are some common questions from our customers that may provide you with the answer you're looking for. If you can't find an answer to your question, please don't hesitate to reach out to us.
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A deferred compensation plan withholds a portion of an employees pay until a specified date, usually retirement. The lump sum owed to an employee in this type of plan is paid out on that date. Examples of deferred compensation plans include pensions, 401(k) retirement plans, and employee stock options.
Unlike a 401(k), there are few legal restrictions on when you withdraw deferred compensation or how long you must wait to withdraw it. Employers, however, impose restrictions to keep you with the company: If you quit or get fired, you lose some of the money.
An employer will offer you the opportunity to defer a portion of your compensation for several years. Doing so defers taxes on any earnings until you withdraw. Examples include pensions, retirement plans, and stock options.
The plans carry some inherent risk for the employees in that the deferred payments are unsecured and not guaranteed. So if the organization faces bankruptcy and creditor claims, the employees may not receive their promised funds. (In contrast, qualified plans such as 401(k)s are protected from bankruptcy creditors).
We often advise clients to take deferred compensation distributions upon retirement and defer commencing Social Security. Each year of Social Security deferral equates to about an 8% annualized increase in benefits.
Depending on your plan provisions, the payment of the deferred compensation can also be structured to reduce your tax liability based on a series of installment payments or lump sum payments based on a specified time. By spreading out the payments, you potentially could reduce your income for each applicable year.
Generally, your deferred compensation (commonly referred to as elective contributions) isnt subject to income tax withholding at the time of deferral, and you dont report it as wages on Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors, because it isnt included in box 1 wages
Deferred compensation is not considered taxable income for employees until they receive the deferred payment in a future tax year.

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