In: Accounting
Discuss two positives and two negatives regarding retirement planning and deferred compensation.
Please write 2-3 paragraphs
A 401(k) retirement plan is an employer-sponsored retirement savings program that enables employees to save for retirement by making pre-tax contributions, they are the most popular plans for series of advantages and security they provide. Investment in 401K allows individual to take loan against these and savings in income tax untill the time of distribution. However, investment options in these are limited and fees in managing the same is high
Deferred compensation plan is idoly suitable for the highly compensated individuals who have maxed out their limit of investing in qualified retirement plans and still wants to manage their retirement savings through non qualified deferred compensation plan. These compensation plans are not covered under Employee Retirement Income Security Act (ERISA), which removes the limitation of amount that can be saved in it and also provides the flexibility to invest in options similar to 401(k) plans, such as mutual fund and stock options. However they are still considered as cautious route because they come with the limitations that unlike a 401(k), they dont provide the flexibility to withdraw funds at will. Investor have to choose the date and he cant withdraw funds prior to that even if it means liquidating them at loss on that particular date. Moreover, No ERISA Protections is provided in this.