Chartered Retirement Planning Counselor (CRPC) Practice Exam 2025 - Free CRPC Practice Questions and Study Guide

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What is the primary benefit of a pure deferred compensation plan?

It guarantees fixed monthly payments regardless of employment.

It allows participants to defer income taxes on current income.

The primary benefit of a pure deferred compensation plan lies in its ability to allow participants to defer income taxes on current income. This means that employees can choose to set aside a portion of their earnings to be received at a later date, typically during retirement. By doing this, they effectively postpone their tax liability until they access the funds, which can result in significant tax savings, particularly if they are in a lower tax bracket upon withdrawal in retirement.

In addition to the immediate tax benefit, deferring income can also aid in long-term financial planning, as it encourages saving for retirement and helps individuals manage their cash flow effectively during their working years. The deferred compensation can grow tax-deferred until it is actually distributed, enhancing the potential for total accumulation due to compound growth over time.

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It provides retirement benefits based on years of service alone.

It enables lower contributions for younger workers.

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