How Deferred Compensation WorksAn employee may negotiate for deferred compensation because it offers immediate tax benefits. In most cases, the taxes due on the income is deferred until the compensation is paid out, often when the employee reaches retirement age. If employees expect to be in a lower tax bracket after retiring, they have a chance to reduce their tax burden. Roth 401(k)s are an exception, requiring the employee to pay taxes on income as it is earned. The balance in a Roth accou...
