deferred compensation plan

deferred compensation plan

from Businessweek

If you've been offered the deferral option, should you take it?

First, evaluate your finances and your company's financial stability--if your company goes bankrupt, you could lose the money. While 401(k) participants are protected in bankruptcy, those in deferred comp plans line up with other unsecured creditors.

Then consider the quality of investment options offered in the plan and the impact of future tax rates, which are expected to rise in 2011 when the Bush tax cuts expire.

Those looming tax increases are one of the biggest factors to consider. If you defer, you must decide how long to defer; the minimum period is two years. That means if the Bush tax cuts expire, you'd be taking the money out at a higher tax rate--39.6% vs. 35% in the highest bracket. So you'll need to offset that either by earning more in the plan or by investing over a long enough period that compounding will make up the difference.

if you can defer for only a few years, it isn't worth it. Consider: If you receive a $100,000 bonus and don't defer, you'd keep $65,000 (at the highest tax rate, excluding state taxes). If you then got 6% on your investment, you'd have $81,144 aftertax in five years. If you deferred that $100,000 and made the same 6%, withdrew the funds in five years, and paid the higher tax rate, you'd have $80,829--so deferring wouldn't pay.

defer for closer to 10 years, if not longer. If you deferred $100,000 for 10 years and earned 6% a year, then paid taxes at the higher rate, you'd net $108,167 vs. $101,410 if you didn't defer. "You need to defer long enough to make it worthwhile if you're going to take money out at a higher tax rate

State taxes matter, too. Deferring is especially worthwhile if you move from a high income tax state, such as New York or California to a low- or no-tax one, such as Texas or Florida, by the time you get your distribution.

Do you have better investment options outside the plan? Might be best to pass on deferring pay.

Do you have other assets to tap if you're laid off, making long-term deferral less risky? Then deferring would probably be worthwhile.

Personal Finance sites

Personal Finance sites

from WSJ, author Banjo

1. basic budgeting sites

Mint.com,

Wesabe.com

Geezeo.com

2. financial plan

SimpliFi.net

uses a virtual financial adviser named Sophie to guide you through a planning process based on financial goals, such as saving for retirement or reducing debt. The site assesses how much you should spend and save to reach your particular goal and tells you how likely you are to achieve it with a "Goal Point Average" ranging from A+ to F. (You don't give the site any of your financial-account information, but you do have to input approximate balances.)

The site can provide details on how much you need to save over a certain period to reach your goals and offer recommendations on types of investments to consider. The site is registered with the Securities and Exchange Commission, which offers investors a measure of protection: Among other things, the site must comply with SEC rules for registered investment advisers and is subject to examination by SEC staff.

Planwithvoyant.com

helps investors forecast the impact of unforeseen events. Step-by-step wizards guide you through the initial preparation of a financial plan, such as identifying your goals and entering income information and expenses. Then charts and graphs show your current financial condition and allow you to test the financial effect of what-if scenarios, such as an unexpected pregnancy or an early retirement. You can also run simulations on how to mitigate those risks, say, by adding insurance or altering your investment strategy.

Basic.esplanner.com

free plan developed by Boston University economics professor Laurence Kotlikoff.

You enter your current and projected salary, retirement age and savings, among other things. The site calculates your sustainable living standard and allows you to tinker with how much a job change, housing move or retirement-account contribution can raise or lower your living standard.

Then the program recommends annual amounts of discretionary spending, savings and life-insurance holdings. The program incorporates a lot of the nitty-gritty details other programs tend to leave out, such as federal and state taxes and future Social Security benefits. But the process can be time-consuming -- it takes up to 30 minutes to fill out all the necessary information. What's more, the basic version stores your plan for only 24 hours, so every time you want to run the simulation, you must input the numbers.

3. Tracking Investments and Getting Advice

SocialPicks.com

Covestor.com

keep track of your own investments and compare your portfolio's performance to that of peers, professional analysts and financial bloggers.

CakeFinancial.com

track investment portfolios but in addition lets them aggregate all of their portfolios in one place, analyze past performance up to 10 years and compare portfolios with other users. Cake's comparison tools look at your current investments and find similar replacement funds with lower fees and expenses. In addition, the site lets you create a watch list, or list of positions that you're interested in tracking, by performance and the number of Cake users who are buying or selling.

Portfoliomonkey.com

enter your portfolio's ticker symbols and number of shares, and the site analyzes your current allocation's expected return and losses, based on analytics evaluating historical volatility and performance. The site can help you reallocate your portfolio, or offer recommendations for stocks that have a low correlation with your portfolio and high expected returns. You can go through those stocks and see how adding them would affect the portfolio.

4. Checking for Fraud

Finra.org/BrokerCheck

Adviserinfo.sec.gov

check the professional background of current and former Finra-registered securities firms and brokers, as well as find any regulatory complaints or customer disputes. You can also see a listing of the broker's current registrations, licenses or exams passed.

Finra.org/Investors/ToolsCalculators

Risk Meter and Scam Meter tools, which walk you through a series of questions aimed at identifying vulnerable individuals and investments.

Risk Meter asks you if you have checked with a securities regulator to see whether an investment professional is licensed. Based on the responses, the tool offers suggestions on how to combat fraud.

Scam Meter allows you to check if an investment is too good to be true, asking questions such as: How did you learn about the investment opportunity, and what have you been told about it? From your answers, the site offers warnings and advice.

5. Keeping Track of Credit

CreditKarma.com,

truly free score and advice on how to improve it

address, phone number and Social Security number. (The site says it doesn't store the number.)

Once you submit that information, the site will give you your score -- but not the entire credit report -- and show you how you stack up against other users in various categories, such as overall users, or those in your state or age group.

Starting tomorrow, the site will help users identify major influences on their score, such as credit-card utilization and on-time payment history. The site uses scores generated by credit-reporting bureau TransUnion LLC.

6. Managing Loans

borrowing money from friends and family.

Virginmoneyus.com

create formalized personal loan documents that set interest rates and repayment plans. The site can also manage repayment using electronic funds transfer, email reminders and year-end reporting.

The cost: $99 to $199. The company also offers the service for business, real-estate and student loans, for various prices.

Virgin Money claims that formalizing loans increases the chance of repayment. Note, though, that it won't lend money or match you up with a lender. The site only manages the loan between you and someone you have already identified, such as your grandmother or college buddy.