Deferred Compensation

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DEFINITION of 'Deferred Compensation'

An amount of earned income that is payable at a later date. Most deferred-compensation plans allow the wage earner to defer tax now so that the funds can be withdrawn and taxed at some point in the future.

BREAKING DOWN 'Deferred Compensation'

The most common form of deferred compensation is a retirement plan. Deferring income allows the earner to use the income later in life when they have a lower tax rate. Other examples include pension plans and stock-option plans.

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