• Deferred compensation provides future financial security.money money money image by Arman Zhenikeyev from Fotolia.com
  
  The term "deferred compensation" refers to a financial arrangement, usually between an employer and employee, where a portion of the employee's earned income is paid at a later date from when it was earned. Classic examples of deferred compensation are pensions and retirement benefits.
  
  

401(k) Plan

• The most common deferred compensation plan, a 401(k), is usually offered to employees by their employer. Typically, the employer will match the employee's contribution to the plan dollar-for-dollar. 401(k) plans allow employees to set aside their current earnings to fund their retirement later in life. The money funneled into a 401(k) plan is also tax-deferred, meaning that the income is not taxed until it is paid out later. However, early withdrawal of the funds usually results in an large penalty tax.
  
  

457 Plan

• Available only to federal and state employees, a 457 plan is is similar to a 401(k) plan except that the employer--the government--does not match employee contributions. As with the 401 (k), tax is deferred until payout and early withdrawal is subject to a penalty.
  
  

409a

• Available to select teachers, a 409a deferred compensation plan allows teachers to receive their salary over a 12-month period instead of only during the school year. For example, a teacher who makes $54,000 as a salary can elect to receive $4,500 every month for 12 months instead of $5,400 for 10 months under a 409a plan.
  
  

Pensions

• Also called retirement plans, pensions are financial arrangements made between employers and their employees to provide those employees with steady, regular income during retirement. As with the 401(k), all earned income is tax deferred until payout during retirement. Employers may or not contribute to the retirement plan.