anonymous_fred
Dryer sheet wannabe
- Joined
- May 30, 2007
- Messages
- 19
Thanks to a promotion at work, my wife now qualifies for a deferred compensation plan, and we are trying to figure out how best to take advantage of it. I'm curious to hear from others who are utilizing deferred compensation for tax engineering.
Her employer gives her the opportunity to defer up to 50% of her salary, and her entire bonus (which is generally about 25% of her salary). She can choose any year at least 3 years in the future to start receiving distributions from a given year's deferred compensation. She can choose to receive the distribution as a lump sum, over 5 years, or over 10 years. Each year she can change the elections for the following year's compensation.
We are currently paying approximately 42% marginal state + federal tax, and we can afford to live off my salary, so it is feasible to defer the maximum allowed. We are both in our very early 30s, and are planning to retire somewhere around age 40.
We have a few concerns; some legitimate and some less so. That's why I'm curious to hear from others participating in similar programs.
* If we defer too much, then when we are forced to receive distributions we may wind up not reaping much tax benefit.
* The deferred compensation goes into a NQRP, which is not protected from creditors. Her employer is a very profitable company, so insolvency is unlikely. But it's always possible.
And a couple questions
* If we move to a lower-tax state after retirement, can our current (high tax) state come after us for taxes on income earned, but deferred, while we were living here?
* Anyone aware of downsides to a program like this? It seems to me like a tremendous "step function" from the retirement others at her company are offered (which is pretty much just 401k and profit sharing). Are we missing some big "gotcha"?
I'd appreciate any insights.. Thanks!
Anonymous_Fred
Her employer gives her the opportunity to defer up to 50% of her salary, and her entire bonus (which is generally about 25% of her salary). She can choose any year at least 3 years in the future to start receiving distributions from a given year's deferred compensation. She can choose to receive the distribution as a lump sum, over 5 years, or over 10 years. Each year she can change the elections for the following year's compensation.
We are currently paying approximately 42% marginal state + federal tax, and we can afford to live off my salary, so it is feasible to defer the maximum allowed. We are both in our very early 30s, and are planning to retire somewhere around age 40.
We have a few concerns; some legitimate and some less so. That's why I'm curious to hear from others participating in similar programs.
* If we defer too much, then when we are forced to receive distributions we may wind up not reaping much tax benefit.
* The deferred compensation goes into a NQRP, which is not protected from creditors. Her employer is a very profitable company, so insolvency is unlikely. But it's always possible.
And a couple questions
* If we move to a lower-tax state after retirement, can our current (high tax) state come after us for taxes on income earned, but deferred, while we were living here?
* Anyone aware of downsides to a program like this? It seems to me like a tremendous "step function" from the retirement others at her company are offered (which is pretty much just 401k and profit sharing). Are we missing some big "gotcha"?
I'd appreciate any insights.. Thanks!
Anonymous_Fred