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Deferred compensation is simply a plan in which an employee defers accepting part of their compensation until a specified future date. For example, at age 55 and earning $250,000 a year, an individual might choose to defer $50,000 of annual compensation per year for the next 10 years until retiring at age 65.
Deferred compensation plans allow employees to withhold a certain amount of their salaries or wages for a specific purpose. Deferred compensation plans can be qualified or non-qualified. Qualified plans fall under the Employee Retirement Income Security Act and include 401(k)s and 403(b)s.
Section 401(k) Plans, Section 403(b) Plans and governmental Section 457(b) Plans generally permit employees to defer compensation on a pre-tax basis.
An elective-deferral contribution is a portion of an employee's salary that's withheld and transferred into a retirement plan such as a 401(k). 2. Elective deferrals can be made on a pre-tax or after-tax basis if an employer allows. 1. The IRS limits how much you can contribute to a qualified retirement plan.
Which of the following types of 457 plans permit employees to defer recognition of income without a risk of forfeiture? 1. Public 457(b) plans.
Deferred compensation plans are optional programs that allow employees (individuals who are officers or employees of a state agency) to defer income until retirement. A deferred compensation plan is offered in addition to a retirement, pension or benefit system established by law.
Salary deferrals are contributions an employee makes, in lieu of salary, to certain retirement plans: 401(k) plans.
Deferred compensation plans are funded informally. There's 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.