Hi, I’m Adam Corwin with Totus Wealth Management.
When most people think about retirement savings, they picture 401(k)s or IRAs. But for many executives and high-earning professionals, there’s another tool that often flies under the radar: deferred compensation plans.
Deferred compensation plans are agreements between an employer and employee to delay part of the employee’s income until a later date. Usually, retirement. These plans can include:
- Non-qualified deferred compensation (NQDC) plans
- Executive bonus arrangements
- Supplemental plans that allow deferrals beyond 401(k) limits
Unlike 401(k)s, which have annual contribution limits and ERISA protections, NQDC plans allow much higher deferrals but don't offer the same legal safeguards. And unlike traditional pensions that guarantee income, deferred comp plans are essentially a promise from your employer to pay you later.
Deferring income can be a valuable tool for high-earning professionals. By pushing part of your income into a future tax year — ideally, when you’re in a lower tax bracket — you can reduce your current taxable income and create an income stream for retirement. When you do take distributions, they're taxed as ordinary income, not capital gains. This means proper timing is essential to avoid pushing yourself into a higher bracket or triggering additional taxes on Social Security benefits or Medicare premiums.
Another important consideration is that these funds are not protected if your employer experiences financial trouble. Unlike your 401(k), deferred compensation isn't held in a separate account. It's just a promise to pay you in the future. In bankruptcy, you could lose some or all of those funds, so understanding the plan's structure and your company's financial stability is essential.
As you approach retirement, it’s important to understand your distribution election options, coordinate with other retirement accounts, and evaluate whether your company offers any early retirement windows that could affect your plan. These choices often can't be changed once made, so getting them right is crucial.
At Totus, we help clients integrate deferred compensation into their broader retirement income plan. We look at how these plans interact with your Social Security benefits, pension, and investment accounts to help minimize lifetime taxes and create consistent income in retirement.
We help you understand when to take your deferred income and how it fits into your overall financial picture. Our goal is to give you more control and confidence as you plan for the future.
If you have questions about your deferred compensation plan or want to understand how it fits into your retirement strategy, reach out to our team at Totus Wealth Management. We’re here to help you make the most of every opportunity.