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Not All Deferred Compensation Plans are Created Equal.
In most cases, you can allocate 100% of your bonus, but only a percentage of your salary. While the money enters the plan on a pre-tax basis, while retaining the chance to grow on a tax-deferred basis, some plans require that the Medicare tax must be paid up front.
Companies with a 12/31 fiscal year end will frequently approach their executive plan participants in October and November to determine what percentage of salary and bonus an executive wishes to contribute to the plan. This is the time for you to take out the crystal ball and speculate about what will happen to you and your family’s cash flow in the coming year. Will there be enough money set aside for emergencies? What should your budget look like? How much cash flow will you need?
It’s only after taking your best guesses at those questions with the help of a financial advisor that you can make an informed decision about what percentage of your compensation should be deployed to your employer’s plan.
Which direction should you take?
SFG Wealth Planning is an independent fee-only advisor. Advisory Services are offered through SFG INVESTMENT ADVISORS, INC., an investment adviser registered with the U.S. Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the SEC. A copy of SFG Investment Advisors’ current disclosure brochure, which describes, among other things, SFG Investment Advisors’ business practices, services and fees, is available through the SEC’s website at www.adviserinfo.sec.gov. SFG Investment Advisors does not provide tax or legal advice.
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