Deferred Compensation Plan - Analyzing Retirement Plans

This assignment analyzes a deferred compensation plan, focusing on the implications for an individual's retirement savings. The paper discusses the 401(k) and 457 plans, comparing the benefits of each and the differences between Roth and traditional options. It also considers the impact of these plans on an individual's ability to save for a home and pursue further education. The analysis highlights the advantages of Roth IRAs for young investors, emphasizing their flexibility and the ability to withdraw contributions without penalty. The document references relevant sources to support the recommendations for financial planning and investment strategies. It also touches upon the benefits of employer-sponsored plans.

Running head: TAX ACCOUNTING
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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].