Deferred Compensation & Retirement Planning

This assignment examines the benefits and considerations of deferred compensation plans, including 401(k) and 457 programs. It analyzes the advantages of a Roth IRA for a 30-year-old individual not participating in a pension scheme. The assignment also explores how employer-sponsored plans offer cost savings and potential impact on future financial goals such as homeownership and further education.

Running head: TAX ACCOUNTING
1
Name:
Institution:
Date:

TAX ACCOUNTING 2
Deferred compensation plan enables employees to make savings for retirement
through payroll deductions that are convenient. This compensation plan has two programs: a
401(k) plan and a 457 plan which both offer after tax options (Roth) and a pre tax option. For
employees enrolled in a company’s pension plan and for those who are non pension members
and contribute 7.5% to either the 401(k) plan or 457 plan , the deferred compensation plan is
a supplementary savings plan for their social security and pension. For employees who are
not part or members of a pension scheme and contribute 7.5% more to the Deferred
compensation plan , the DCP is their only plan in retirement in lieu of social
security(Engdahl, 2011).
Melissa is only 30 years old and does not participate in her employers pension
scheme. I would recommend her to invest in Roth IRA because it offers more flexibility.
She can be able to withdraw her contributions without incurring a penalty ( however, this
does not allow her to withdraw the earnings). She has a long way to retire ,and by investing in
Roth rather than the traditional IRA , she is able to get her money if need arises and not worry
of locking away her money for too long(Ricardo, 2016). The benefits of investing in an
employer- sponsored plan is that the employee is able to benefit from low cost method of
obtaining services that are discounted. Her plans to buy a house and enroll for a masters
degree will be affected by the reduced income she gets after deduction of the contributions.

TAX ACCOUNTING 3
References
Engdahl, S. (2011). Taxation. Farmington Hills, MI: Greenhaven Press.
Ricardo, D. (2016). On the principles of political economy and taxation. Lavergne, TN:
[publisher not identified].