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Contribute a Set Percentage One easy way to increase your retirement savings is to contribute a percentage of your income to your Deferred Compensation Plan (DCP) account. Consider saving between 7% and 10% of your salary.
Benefits of a deferred compensation plan, whether qualified or not, include tax savings, the realization of capital gains, and pre-retirement distributions.
A deferred compensation plan allows a portion of an employees compensation to be paid at a later date, usually to reduce income taxes. Because taxes on this income are deferred until it is paid out, these plans can be attractive to high earners.
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.
Deferred compensation is often considered better than a 401(k) for high-paid executives looking to reduce their tax burden. As well, contribution limits on deferred compensation plans can be much higher than 401(k) limits.

People also ask

Deferred compensation refers to money received in one year for work performed in a previous year often many years earlier. Typically, you receive deferred compensation after retiring or leaving employment.
Deferred compensation plans are funded informally. Theres essentially a promise from the employer to pay the deferred funds, plus any investment earnings, to the employee at the time specified. In contrast, with a 401(k), a formally established account exists.
A deferred comp plan is most beneficial when youre able to reduce both your present and future tax rates by deferring your income. Unfortunately, its challenging to project future tax rates. This takes analysis, projections, and assumptions.
Examples of deferred compensation include retirement, pension, deferred savings and stock-option plans offered by employers. In many cases, you do not pay any taxes on the deferred income until you receive it as payment. Deferred compensation plans come in two types qualified and non-qualified.
A deferred comp plan is most beneficial when youre able to reduce both your present and future tax rates by deferring your income. Unfortunately, its challenging to project future tax rates. This takes analysis, projections, and assumptions.

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