I started a new job and I now have access to a Deferred Compensation Plan. I've read enough of the plan materials and online sources to understand what it is at a high level, but I figured I'd ask if anyone here has any experience and advice with these. I already max out available HSA, 401k, and 403b and earn too much for a Roth. I have healthy investments, savings, and 529s. I'm sure the answer is "it depends", but I have to decide whether to put a few excess dollars in this, invest it via brokerage account with associated taxes, or continue saving for some other investments such as real estate or trust.

Mandatory "you are not my lawyer, accountant, or other legal advisor".

Brokerage account, S&P 500 index funds...VOO, VTI, VSTAX, VFIAX, SPY, SWPPX

You can still contribute to a Roth IRA via the backdoor just FYI. Look up the Backdoor Roth IRA, very easy process

I participate in my company's deferred plan. Currently deferring until retirement and then will be paid out over the following 15 years. This was my choice.

They are a great way to get extra tax-deferral in your earning years. ff you have certain spending needs - college for kids, home improvement, boat, etc, its a good way to defer for upcoming expenses.

DouglasPearce said:

---

You can still contribute to a Roth IRA via the backdoor just FYI. Look up the Backdoor Roth IRA, very easy process

---

There is also mega backdoor Roth. You make after tax contributions to your 401k (in addition to maxing out your pre tax) and then your plan administrator converts them to a Roth 401k. Your employer/plan has to allow it, though, and not all do.

The current max for combined employee/employer 401k contributions is $70k, so after your $23,500 pre-tax contribution, you could put up to an additional $46,500 in after tax, depending on what your employer contributes. The cap is higher if you're 50+.

That's way better than the $7k limit on the Roth IRA.

I have been participating in a 457b for a few years. I recently had an unexpected change of employers and the new employer does not have a 457b. My understanding is my only options are to leave the money in the account with my old employer (not crazy about this) or take the funds out and pay taxes now. Not the end of the world but not sure I would have contributed if I had known this would be the outcome.

Not all plans offer this, unfortunately.

Yep. That's why I pointed it out. Might as well call and ask. I don't recall ever being explicitly told I could do it by my company.

When you call your 40-k admin, ask if in-plan or in-service distributions are allowed. If they are, you can mega backdoor.

ag0207 said:

---

What happens to your money if the company goes under?

---

This. If it's a nonqualified plan, regardless of what leadership/HR says, money put to a nonqualified plan (you mentioned 403(b) so I'm thinking some kind of nongovernmental, nonqualified 457(b) or 457(f) plan) will be at risk of creditors.

If the organization goes under it will be considered part of the general assets of the organization and you'll be in line with other general unsecured creditors. It's much lower in the hierarchy than wages.

Also, read the "change in control" language very carefully. There may be immediate or accelerated distribution if certain events occur (merger/acquisition, etc.).

This happened to someone I know when their company was acquired. They had all of their DC paid out at one time. Huge tax hit.

CT-11 said:

---

This happened to someone I know when their company was acquired. They had all of their DC paid out at one time. Huge tax hit.

---

Well, now you know two! It hurt at the time.

Delaying income until you retire sounds good but one must consider the impact on IRMAA and, later in retirement, the RMD amounts. Depending on age at retirement, social security and other income levels the impact to your income and tax could be significant.

Depending on how they're set up, they offer the same tax differed growth advantage that a 401k offer.

Key differences: Usually there is no "employer match", and you need to be confident in the company's financial condition because you sit behind the secured lenders in a bankruptcy event.

I retired in 2018 and my deferred comp was parceled out over 3 years. It was a non-taxable transfer, the only security that transferred in kind was the company stock. And that's how most of my def comp was give, company stock.