A simple deferred compensation agreement (SDCA) is a written agreement between an employer and an employee that allows the employee to defer a portion of their compensation to a later date. In essence, it is a way for employees to save for the future by deferring a portion of their earnings.

The SDCA is an excellent way to save for retirement, particularly for high-income earners. It allows them to defer a portion of their income to a later date, when they may be in a lower tax bracket. This can help them save money on taxes and maximize their retirement savings.

One of the most significant advantages of an SDCA is that it is simple to administer. Unlike other retirement plans, such as 401(k)s, an SDCA does not require any annual filings or compliance testing. This makes it an attractive option for small businesses that may not have the resources to manage more complex retirement plans.

Another advantage of an SDCA is that it allows employees to customize their retirement savings strategy. They can choose how much of their compensation to defer and when to receive their deferred payments. This flexibility can be particularly helpful for employees who have irregular income or expect significant changes in their earning potential.

However, it is essential to note that an SDCA is not without its drawbacks. One significant disadvantage is that deferred compensation is generally subject to the claims of the employer`s creditors. This means that if the employer goes bankrupt, the employee may lose their deferred compensation.

In addition, an SDCA is not a qualified retirement plan, which means that it is not subject to the same rules and protections as traditional retirement plans. For example, employers are not required to contribute to an SDCA, and employees do not have the same protections against discrimination or harassment.

In conclusion, a simple deferred compensation agreement can be an effective way for high-income earners to save for retirement while maximizing their tax savings. However, it is essential to consider the potential drawbacks and to consult with a financial advisor or tax professional before entering into an SDCA. As a professional, this article aims to provide a general overview of SDCA and its benefits and drawbacks.