Best method to enter Deferred Compensation

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Joined: Sun May 03, 2020 5:48 pm

Best method to enter Deferred Compensation

Post by jimcorbin »

Is Tax Deferred Savings the best Cash Flow type to Enter Deferred Compensation? For my company, Deferred Compensation is money pulled out of pay checks (or incentives) prior to taxation for the current year, and then grows tax free until withdrawn. I choose out of many investment options. It is taxed upon withdrawal, which can be monthly over 5 years, or lump sum. I tried Tax Deferred Savings, but am not sure I am getting the investment growth prior to the lump sum payment, or series of payments over 5 years. Note that to approximate the 5 years withdrawals I simply divided the total by 5 and then specified start and finish years of 5 years apart.

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Joined: Thu Feb 28, 2008 6:48 pm

Re: Best method to enter Deferred Compensation

Post by jimr »

How substantial do you expect the lump sum to be as a percent of your total retirement savings? Also, about how long will the money grow before you withdraw the funds? Finally,

The reason I ask is that if the amount isn't a huge part of your overall portfolio and if the growth period is relatively short, it might be easier to use a spreadsheet (or calculator) to estimate the net after tax value of the lump sum at the end and just transfer that amount into your taxable portfolio using a taxable savings cash flow.

The planner is set up to automatically make withdrawals on its own during retirement to fund all needed spending. The problem is that the planner decides which portfolio to pull any needed funds from (eg taxable, tax deferred, etc). There are some tricks you can use to override this and take more control on your own, but it gets complicated fast and it can be tough to coerce the planner to do exactly what you'd like it to do and even tougher to verify that it's handling things the way you expect.

That said, if you're interested in modeling this within the planner, there's likely a way to do it and I'm happy to help.

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