How useful is deferrred compensation?

My accountant doesn't like deferred compensation, because he says income taxes are likely to go up, so if I have around $50k that I don't need, it's best to take the money now, pay the taxes, and invest it. Otherwise, I'd invest it first and take it out in 15 years and pay higher taxes on the whole thing.

Has anyone done calculations to see what the breakeven point is? I mean, in terms of number of years that it would take to come out ahead by deferring?

If I take the income and pay taxes now, I'd still have to pay taxes on future capital gains and dividends (I plan to invest in mutual funds). If I defer the income and get paid 15 years from now, I pay taxes 15 years from now on what might be twice the amount but just once.

One last point. Does it matter if I'm in the AMT bracket? If I have additional income now, could it potentially take me out of the AMT bracket so I could deduct my property taxes at some point?

It depends on a number of factors.

1) The longer time frame, the more it makes sense to defer the income. Compound "interest" or earnings is a powerful tool. If you pay taxes up front, you've lost a big chunk of your ability to do this compounding.

2) Your taxes. If you expect to be in a lower or the same tax bracket in retirement, it would definitely help you to defer. Unless you invest in tax free bonds, you'd be taxed on your taxable investment income year after year. On top of the initial income tax hit when you get paid.

3) The rate of return. If you wind up investing well in the deferred comp account, you're golden. Otherwise, it wouldn't matter much.

All things considered, if you are still pretty young, don't need the money, and expect to be in a similar or lower tax bracket when you retire, go for the deferred comp and let compound interest work for you. Instead of letting "compound taxes" work against you.