Deferred Compensation

Deferred compensation is a financial arrangement in which a portion of an employee's income is set aside to be paid out at a later date, typically upon retirement. This type of compensation allows employees to defer taxes on the income until it is received, potentially resulting in tax savings if the employee is in a lower tax bracket at the time of distribution. Common examples of deferred compensation plans include retirement plans like 401(k)s and employee pensions.The primary benefit of deferred compensation is the ability to lower current taxable income and potentially reduce the overall tax burden.