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Death and Taxes Still Certain; Future Tax Rate Not

White paper from The Principal explores considerations in the uncertain tax environment

November 3, 2011 (Des Moines, Iowa) – Given uncertainty of future personal income tax rates, individuals are questioning if deferring income into the future, even in a a potentially higher tax rate environment, trumps receiving compensation today. The Principal Financial Group® examines why key employees deferring compensation may still come out ahead even in a rising tax scenario.

The white paper Plan Decisions and Changing Tax Conditions offers a timely look at planning implications in a challenging tax environment. This in-depth analysis helps employers evaluate the effectiveness of nonqualified deferred compensation plans in light of potential tax changes facing their key employees.

“Given the current federal and state budget deficits, future increases in the tax rate are likely, especially for higher-income earners,” said Andy Dalgliesh, director of nonqualified, for The Principal®. “With this potential, deferring the taxation of current income into the future may seem a questionable strategy, but there are underlying factors that should be considered.”

Designed to demonstrate how the tax rate environment actually affects individual plan participants, the paper outlines several specific scenarios. The white paper identifies four key factors to consider when comparing the effect of taxes on deferred compensation versus paying taxes today. These factors include:

  • Comparing the treatment of tax-deferred and current-tax investment options
  • The effects of marginal versus effective tax rates
  • The time horizon of deferral income
  • Individual control of taxation

“While predicting future tax rates can never be entirely certain, our analysis demonstrates that even in a higher tax environment, there is usually still an advantage to deferring income into the future,” notes Dalgliesh. “In today’s volatile economy, saving on a tax-deferred basis through a nonqualified plan is one more way key employees can build a more secure financial future.”

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About the Principal Financial Group

The Principal Financial Group® (The Principal®)[1] is a global investment management leader including retirement services, insurance solutions and asset management. The Principal offers businesses, individuals and institutional clients a wide range of financial products and services, including retirement, asset management and insurance through its diverse family of financial services companies. Founded in 1879 and a member of the FORTUNE 500®, the Principal Financial Group has $320.8 billion in assets under management[2] and serves some 17.8 million customers worldwide from offices in Asia, Australia, Europe, Latin America and the United States. Principal Financial Group, Inc. is traded on the New York Stock Exchange under the ticker symbol PFG. For more information, visit

“The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
As of September 30, 2011.

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