Rob has a benefit at work which enables him to defer his current receipt of income and have it paid as a later date, when he will probably be in a lower tax bracket. Which benefit fits this description?

• A. Pension Plan
• B. Health Savings Plan
• C. Salary Reduction Plan
• D. Deferred Compensation Option

Answer: (D)

Deferring compensation is an arrangement where an employee agrees to receive part of their earnings at a future date rather than in the current period. This lets the employee push income into retirement years when they expect to be in a lower tax bracket, and the funds can grow tax-deferred until they’re paid out. That exactly matches the description you’re given: postponing current income to be paid later.

A pension plan provides retirement benefits funded by the employer and isn’t about the employee choosing to defer their own current pay. A Health Savings Plan focuses on paying medical expenses, not deferring income. A salary reduction plan involves reducing current pay through pre-tax deductions, but it doesn’t inherently specify postponing receipt of income to a future date. The deferred compensation option is the one designed for postponing compensation to a later time, which is why it’s the best fit.