I recently moved to the US from Canada and have been wondering about these two types of plans. Originally I did not intend to stay in the US for more than a year and decided to go with my employers Executive Differred Compensation plan (they match contributions at 50%) since I qualified for it with my position. Things have worked out differently and now I will be in the US much longer than I had planned. Should I start a 401(k) plan now or stick to the Exec one I started with?
2007-06-20 09:56:59 · 6 answers · asked by a_knight1 1 in Business & Finance ➔ Personal Finance
Deferred Compensation Plans are usually set up to for executives who otherwise may be ineligible for the 401(k) plans.
Each year, there is an annual cap to which an employee can set aside a portion of their current income ($15,000 for 2006 and $15,500 for 2007). These amounts are limited, however, for persons whose salary levels are considered "highly compensated" (annual limits for each year). When salary levels reach those amounts, the contributions may be limited or unavailable. To compensate for this, the company may choose to set up DCPs.
Both plans are contributed pre-tax.
DCPs are considered non-qualified plans. One difference is that 401(k)s are protected from creditors whereas DCPs are not. One other thing to consider in choosing which plan to fund.
Look at the two different plans your company provides (401 and the DCP) and compare. Another thing to consider, however, is where you intend on retiring -- Canada or US?
Each DCP and 401 plans are customized to the company sponsoring it. Ask someone from your HR department to give you more information. Or get the details of your company's plans and seek a qualified tax accountant/financial planner for more details.
- John
2007-06-20 10:57:21 · answer #1 · answered by John B 2 · 0⤊ 0⤋
To me, it sounds the the EDCP is a non-qualified plan that is offered to employee's of the company with higher incomes, this plan if this is the case (please let me know) has its pro's and con's. Essentially a 401k plan needs to pass non-discriminatory testing each year to make sure it does not favor on the side of its highly compensated employee's, which means your plan may restrict the amount you can contribute each year. However a 401k plan gives you a much wider variety of options at retirement or when you leave your job, such as rolling it over to another qualified plan so you do not get taxes immediately when withdrawing, and that way you can continue to save for retirement. A lot of times it also offers features such as taking a loan (which i do not recommend if you do not have to) but at least its there in times of financial difficulty. And lastly a 401k is backed by ERISA which is a legislation that protects you money if something were to happen and your company went bankrupt.
I would see if the EDCP is a Non-Qualified plan, and if it is switch to the 401k plan, and maybe use the EDCP to supplement your retirement
2007-06-20 10:20:36 · answer #2 · answered by jessicaL 2 · 0⤊ 0⤋
I've never even heard of a Executive Differred Compensation plan before.
2007-06-20 09:59:38 · answer #3 · answered by do it movin' 1 · 0⤊ 0⤋
Stick with the Exec plan since they match. In a 401K you only have the money you put in.
2007-06-20 10:18:13 · answer #4 · answered by banananose_89117 7 · 0⤊ 0⤋
I think that 401(k) is always a good idea to have. But if I were you I would have an additinal retirement savings plan.
2007-06-20 10:00:57 · answer #5 · answered by Malgorzata B 4 · 0⤊ 0⤋
401,000.oo dollars is alot of money!!!!!! I Id keep the money and get rid of that other thingy you said.......sounds too complicated, and cash is wonderful!!! Keep the 401,000.oo grand!
2007-06-20 10:01:55 · answer #6 · answered by Anonymous · 0⤊ 1⤋