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My Deferred Compensation Plan Won’t Let Me Take Money Out. – Susan

“Dear Paul,

Last year I had an income downturn. I have credit card debt that is drowning me and I struggle to pay everything each month. I now have some medical expenses and have had some family emergencies that have created more financial stress. I have a deferred compensation fund through my job that has more than sufficient funds to pay off all my other debts, but the fund says they can not allow me to remove any funds.

Is there a way to access these funds so I don’t have to file bankruptcy?

Susan”

Hi Susan,

Usually deferred compensation plans have restrictions placed on the funds until what the plan calls “normal retirement age”; many times age 59 ½, but sometimes older. Additionally, most, if not all, deferred compensation plans are not guaranteed (in other words, they are subject to the claims of creditors of the company for whom you work).

They can’t be guaranteed because then the plan loses the ability to defer taxation on the contributions that you make with pre-tax dollars.

Also, most deferred comp plans are structured to pay out over a pre-determined number of years after you reach normal retirement age. That is when income taxes are due; on each payment. If you have a 401k plan at work, you may be eligible to take a loan out against it or to take a pre-59 ½ hardship withdrawal. Check with your HR department on this.

My advice would be for you to contact a bankruptcy attorney and your tax advisor to see if there may be another way of handling your plight. Sorry I couldn’t be more help,

Paul

*The above information is not considered to be investment advice. Please consult your personal legal, financial and tax advisors.

My Deferred Compensation Plan Wont Let Me Take Money Out.   SusanMr. Bennett is a Certified Financial Planner™ professional (CFP®), Chartered Financial Consultant (ChFC®), Accredited Investment Fiduciary™ (AIF®) and Managing Partner of c5 Wealth Management, LLC. He holds a Master of Science in Finance (MSF) with Honors from Indiana University – Kelley School of Business and a BA from the University of Florida. He is currently pursuing his PhD in Economics from SMC University. Mr. Bennett has completed the Advest Institute’s advanced program on portfolio analytics and behavioral finance at Harvard University.

He was recently recognized by Washingtonian Magazine as a Top Financial Advisor and Kiplinger’s Personal Finance Magazine, the Journal of Accountancy and the American Bar Association Journal as Who’s Who of Virginia Certified Financial Planner™ professionals. In addition, he has also been recently selected by the Consumers’ Research Council of America as one of “America’s Best Financial Planners”. He is a current contributor to the Rydex Advisor Benchmarking Index. He is quoted often in the press, has been featured on CNNRadio.com and has contributed to various publications such as U.S. News and World Report, Boomerater.com, Advisor Today, Dow Jones News, Financial Advisor Magazine, Financial Planning Magazine, Investment News, The Washington Business Journal and The Washington Times.

If you have a questions about investing, financial planning, retirement, entrepreneurship, executive benefits and insurance (life, disability, long-term care, etc.) you’d like for Paul to answer, just use the online form. The help is free.

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  • Bruce Renner

    Mark,
    I have a client with a Morgan Stanley Executive Deferred Comp plan from 1986 that is receiving 11% compounded annually. Current face value is 3mm. He is looking to use it as collateral for a 1.5mm 3 year loan. It’s full maturity is 2019 at 5.7mm. although he could anuitize today, he would prefer not to. He is 59. Do you have any lenders that might be interested in making this loan?

  • Peterontong

    There is no guarantee for deferred compensation plans and being attached with one of the reputed debt recovery agencies uk , i fully agreed with the view of the above person who made the comment and show you the solution to cope up and get out of the possible bankruptcy. I also advice you to take advice from a reputed bankruptcy attorney and your sketched tax advisor if any, to see the possible relief and best solutions.

  • Peterontong

     There is no guarantee for deferred compensation plans and being attached with one of the reputed debt recovery agencies uk , i fully agreed with the view of the above person who made the comment and show you the solution to cope up and get out of the possible bankruptcy. I also advice you to take advice from a reputed bankruptcy attorney and your sketched tax advisor if any, to see the possible relief and best solutions. 

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