DEFERRED COMPENSATION PLAN EMPLOYEE ENROLLMENT 2025

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Deferred compensation plans work by allowing employees to set aside part of their paycheck before taxes are taken out, just like a 401(k) account, but without the standard contribution limits.
The Risks Of Deferred Compensation Plans The biggest downside to most of these plans is the risk of the company declaring bankruptcy. It is surprising that most, if not all, of these plans arent in a trust that cannot be touched by creditors.
Cons of 457(b) plans: Fewer investing options than 401(k)s (Not as common today) Only available to certain employees employed by state or local governments or qualifying nonprofits. Employer contributions count toward the annual limit. Non-governmental 457(b) plans are riskier.
By contrast, there are no IRC age restrictions on distributions from a deferred compensation plan. Deferred compensation plans dont have required minimum distributions, either.
What is a deferred compensation plan and how does it work? Deferred compensation allows employees to defer payment of an agreed-upon portion of their earned income to a future date, usually retirement. In many cases, the taxes owed on the income are also deferred.
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The two plans are also different in that 401(k) plans do not offer a three-year Pre-Retirement Catch-Up; and 457(b) plans do. Another difference is that a 401(k) distribution prior to age 59 may be subject to a 10% early withdrawal penalty and 457(b) plans generally do not have the same early withdrawal penalty.
Qualified deferred compensation plans With these plans, employees contribute pretax dollars via payroll deductions to their retirement savings account. The total contributions cannot exceed the prescribed IRS annual limit. Various investment options allow an employees savings to grow over time.

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