Deferred compensation is an arrangement in which a portion of an employee's income is paid out at a later date after which the income was earned. Examples of deferred compensation include pensions, retirement plans, and employee stock options.

What are examples of deferred compensation?

Examples of deferred compensation include retirement, pension, deferred savings and stock-option plans offered by employers. In many cases, you do not pay any taxes on the deferred income until you receive it as payment. Deferred compensation plans come in two types — qualified and non-qualified.

Is deferred compensation a good idea?

A deferred comp plan is most beneficial when you're able to reduce both your present and future tax rates by deferring your income. ... The key is, the longer you have until receiving the deferred income, the smaller amount you should defer unless it's apparent there is a tax benefit to deferring more significant amounts.