Introduction To Deferred Compensation Plans

In contrast to the traditional pension plans discussed above, known for paying a monthly benefit based on funds provided by the employer, deferred compensation plans are known for the investment that you or your spouse make. You’ll want to identify all profit-sharing, annuity, SEP-IRA, Keogh, 401(k), Roth IRA, IRA and similar plans.

Deferred compensation plans are quite different from pension plans. With their focus on defined contributions made by the plan owner, the latest statement may be all that is needed. Obtain and review the plan statement to see if any analysis is required to project growth rates or allocate prior separate contributions.

Many deferred compensation plans are essentially investment accounts funded with your pre-tax dollars, or in some cases after-tax dollars. While pension plans usually require an analysis to get an opinion of present worth, most deferred compensation plan values can be read from the statement. However, the conditions and tax consequences on withdrawing funds will be different for pre- and after-tax funded deferred compensation plans. You will need expert advice to make sure that you fully understand the alternatives to dividing deferred compensation plans in any fashion other than “down the middle, right now” by properly rolling over the funds into two separate accounts.

Protecting your interest in deferred compensation plans is also easy. In most cases, they are a self-directed account at a bank, stock brokerage or other financial institution. A court order barring you or your spouse from transferring any of these funds, served on the trustee and the financial officer managing the investment, is adequate.