The Planning Corner: What to Weigh Before You Defer Compensation

Jun 11 2026 | Back to Blog List

VIDEO TRANSCRIPT:

David Ernst: I'm David Ernst, partner at Cedar Point Capital Partners, and I'm joined by our Director of Financial Planning, Nick Timm. Today, we're talking about deferred compensation and the decisions that matter most.

So Nick, if a client's deferring part of their bonus, how much?

Nick Timm: So, you're taxed at the top rate today. Deferring pushes that income to retirement where you're potentially taxed at a lower rate. So, how much can you lock away for years and not miss? Defer that amount and not a dollar more.

David: And what about the distribution election?

Nick: You're selecting either a lump sum or installment payments. A lump sum can hit you pretty high in one tax year. Installment payments can spread that out over multiple years.

David: What if a client moves to a different state?

Nick: It's not always taxed in the state where that money's earned. So, under federal law, if you take installment payments of 10 or more years, that's taxed in the state where you live. If you take that lump sum, then that's taxed in the state where that money is earned, even if you moved away.

Also, that money is on the employer's books; it's not necessarily protected like a 401(k). So, the strategy works best if you trust the company's staying power and you're deferring money that you don't need for many years.

David: If you're deferring part of your pay, how much, how you take it, and where you live will all work together. If you'd like to learn more about deferred comp as part of a broader plan, you can connect with us or reach out to us and let's start the conversation.

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