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Author: OldOne Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75616  
Subject: Re: How safe is my deferred comp? Date: 11/13/2005 11:23 PM
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Deferred compensation is only worthwhile if you believe that your future marginal tax rate is going to be lower than your current tax rate. If the rates are the same, you will pay the same amount in taxes. Set up an excel spreadsheet & see for yourself. I could write out the mathematical formula for you, but I don't know how to do it in html.

If you are saving as much as it seems like, your marginal tax rate will not go down in retirement. I know mine isn't going to decrease.

As far as I can see, taxes are as low as they are likely to be for a generation or longer. I would take the money now, pay the taxes and not have to worry about the company's fortunes.

As an added benefit, you can invest the after-tax money and pay capital gains on any increase, instead of income tax.

Or, if you want, you can buy real estate and through 1031 exchanges avoid paying any future taxes at all, right up until death. This is the only real tax "loophole" left to the upper middle class, and you have to die to take full advantage...

The only drawback is that your account will seem smaller because it will be after-tax money instead of before-tax money. I prefer this myself, because it keeps me saving and investing more. If my current marginal tax rate is 40% (state and federal) $600k after tax is the same as $1M before tax, but I don't spend as much. And, when the relatives come a-knocking at the financial door DW doesn't think we are so well-off.

OldOne

And, there is the huge benefit of being the master of your own investment destiny instead of being at the mercy of someone else.
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