For many professionals, questions about compensation don’t stop with their salary. Benefits, retirement savings, and additional programs can all contribute to shaping long-term financial security. 

One option that often sparks curiosity is deferred compensation. It’s a subject that can feel both intriguing and complicated, leaving many people asking the same question: Should I do deferred compensation?

At Heritage Wealth Retirement Planning, we help clients understand choices like these in plain terms. If you’ve ever wondered whether this path is right for you, our team can walk you through the advantages and trade-offs. 

Contact us today at (630) 868-9127 to explore how this decision aligns with your broader plan.

Looking Closer at Deferred Compensation

The term “deferred compensation” simply means part of your earnings is set aside to be paid later, usually during retirement. 

Instead of receiving the full amount of your paycheck now, you agree with your employer to postpone receiving a portion until a future date.

There are generally two types: qualified plans (such as 401(k) plans, which are protected by federal regulations) and non-qualified plans (which offer companies flexibility but carry added risks). 

For someone asking, should I do deferred compensation, understanding the difference is the first step.

Why People Consider Deferred Compensation

There are several reasons professionals think about this option:

• Tax deferral – Pushing income into future years may reduce today’s taxable income.

• Retirement income – It creates another stream of income for later in life.

• Company retention strategy – Employers use these plans to reward and keep top talent.

But with every benefit comes a question of balance. While deferring income may reduce current taxes, it could create challenges later, depending on changes in tax law or evolving personal financial needs.

How to Answer: Should I Do Deferred Compensation?

The answer isn’t universal. it depends on your situation. Think about these factors:

1. Your current vs. future tax bracket
   If you expect to be in a lower bracket in retirement, deferring income could save money.

2. Your access to funds
   Deferred compensation isn’t liquid. If you need money earlier than the payout schedule allows, you might find yourself short on cash.

3. Company stability
   With non-qualified plans, your deferred funds are essentially tied to the company’s financial health. If the company struggles, your funds could be at risk.

4. Your retirement goals
   Are you planning for a comfortable lifestyle that requires multiple income sources? Or do you already have substantial retirement savings elsewhere?

Asking “Should I do deferred compensation?” means weighing both financial projections and personal comfort with risk.

Benefits of Deferring Income

Let’s explore why someone might commit to such a plan:

• Lower your immediate tax burden – You can reduce your taxable income during peak earning years.

• Retirement cash flow – Payments received later help replace a paycheck after retirement.

• Potential company match – Some firms enhance these plans with contributions or bonuses.

Risks You Need to Know

On the other side of the equation, there are challenges worth considering:

• No guaranteed safety – With non-qualified plans, funds are subject to company creditors.

• Potential higher taxes later – If tax laws change or your bracket rises, you may not save as much as expected.

• Limited flexibility – Once you set the terms, it can be challenging to adjust them without incurring penalties.

So, when wondering “Should I do deferred compensation?”, remember it’s not only about potential benefits but also about managing these risks realistically.

Who Usually Benefits Most?

Deferred compensation often appeals to:

• Executives and high earners who max out their 401(k) contributions and still want to save more.

• Professionals who are highly confident in their employer’s long-term outlook.

• Individuals who have already built emergency savings and don’t need immediate access to these funds.

For others, the restrictions may outweigh the positives.

Comparing Deferred Compensation to Other Savings Tools

It’s helpful to compare deferred compensation with other familiar vehicles:

• 401(k) – Federally regulated, usually with employer match, and protected from company bankruptcy.

• IRA – Offers tax advantages, flexibility, and personal control.

• Brokerage account – No tax deferral, but complete liquidity and flexibility.

Scenarios to Think Through

1. The High Earner Near Retirement
   A professional in their late 50s, still working at a stable company, may use deferred compensation to reduce today’s taxes while building income for early retirement years.
   
   

2. The Mid-Career Professional With Big Expenses
   Someone in their 40s with children heading to college might decide against deferring income, as flexibility takes precedence over tax deferral at this stage.
   
   

3. The Risk-Tolerant Executive
   An executive confident in their employer’s growth might commit heavily to deferred compensation, aiming to balance 401(k) savings with additional income streams.

The Role of Taxes

Much of the decision comes back to tax planning. Deferring compensation today doesn’t erase taxes. It shifts them. 

For many people, this can be beneficial. For others, especially if tax laws change, it might backfire. The IRS resource on deferred compensation provides further detail.

How Heritage Wealth Retirement Planning Can Help

At Heritage Wealth Retirement Planning, our focus is on helping clients weigh these choices in the context of their entire financial life. Deferred compensation isn’t an isolated decision—it affects retirement income, tax strategy, and estate planning.

Our process involves:

• Reviewing your current and projected tax brackets

• Evaluating company stability and plan design

• Assessing your liquidity needs

• Coordinating deferred income with other retirement accounts

Staying Flexible Over Time

A deferred compensation plan is not something you set once and forget. Life events, job changes, or shifts in tax law may prompt a review of your tax situation. That’s why we schedule ongoing conversations, keeping your strategy aligned with your goals.

Final Thoughts

For some, it’s a powerful way to build retirement income while reducing their tax burden today. For others, the risks or lack of flexibility may outweigh the benefits. The best answer depends on your goals, tax outlook, and confidence in your employer’s future.

At Heritage Wealth Retirement Planning, we work side by side with you to evaluate whether this choice fits into your overall retirement strategy. Call us today at (630) 868-9127 or visit Heritage Wealth to schedule a consultation.