Fix Electronically Signing Deferred Compensation Plan For Free

Disadvantages of Deferred Compensation With a deferred compensation plan, you are effectively a creditor of the company, lending the company the salary you have deferred. If the company declares bankruptcy in the future, you can lose some or all of this money.

Disadvantages of Nonqualified Deferred Compensation Plan They can't withdraw early, like they can with a 401(k) or other qualified retirement plans. Fund protection: Their money isn't protected by the Employee Retirement Income Security Act (ERISA).

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.

The Bottom Line. If you have a qualified plan and have passed the vesting period, your deferred compensation is yours, even if you quit with no notice on very bad terms. If you have a non-qualified plan, you may have to forfeit all of your deferred compensation by quitting depending on your plan's specific terms.

The biggest risk of deferred compensation plans is they're not guaranteed; if your company goes bankrupt, you might receive none of the income you deferred.

Disadvantages of Nonqualified Deferred Compensation Plan They can't withdraw early, like they can with a 401(k) or other qualified retirement plans. Fund protection: Their money isn't protected by the Employee Retirement Income Security Act (ERISA).

Deferred compensation plans tend to offer better investment options than most 401(k) plans, but are at a disadvantage regarding liquidity. Typically, deferred compensation funds cannot be accessed, for any reason, before the specified distribution date.

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.