What are examples of deferred compensation?

Retirement plans and employee pensions are examples of deferred compensation. Employers usually withhold a fraction of employee compensation each month, accrue it over time, and pay the lump sum on a date previously agreed upon in the employment contract. There are many forms of deferred compensation, including retirement plans, pension plans, and stock option plans. Pension plans are an example of deferred compensation, as is offering employees stock options.

Different deferred compensation plans vary in the amount you and your employer can contribute, how contributions are taxed and where the contributions go (many plans allocate contributions to various investments, and these may also vary). However, for many plans, contributions are not subject to income tax until they are withdrawn. Unlike a 401 (k) plan, when funds are received from a deferred compensation plan, they cannot be transferred to an IRA account.