An NQDC plan generally allows you to defer a portion of your compensation, and related federal and state income taxes, to a later date. Depending on the terms of your plan, you may be able to use your deferral to help you fund important financial milestones and bridge a potential retirement income gap to help you achieve the retirement you envision.
Please note, the scenarios represented are a general representation of how a NQDC plan may help fund financial goals. The ability to execute the sample strategies will depend on the terms of your plan. Consult your plan document for your particular plan provisions.
Unlike traditional retirement plans, there are no IRS contribution limits on your deferred compensation, but there may be limits under the plan. In addition, those deferrals are not subject to current federal and state income taxes, so you may be able to reduce your tax liability for the years that you defer.3 Plus, potential notional earnings grow on a tax-deferred basis, which may help your savings grow faster.
Even if you contribute the maximum to your 401(k) or 403(b) plan, you could experience a shortfall when trying to replace your employment income in retirement. Deferring a portion of your current compensation under your NQDC plan may help you achieve your standard of living goal in retirement and may allow you to create a systematic retirement income stream.
When you make your annual deferral elections, you may have the opportunity to align the timing and method of distributions with different financial goals, like funding life events and major purchases, that occur throughout your career.4
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If your plan permits installment payments, you may have the ability to arrange your distributions to potentially spread the federal and state income taxes due over multiple years, creating the opportunity to help manage your future income tax liability.
Each NQDC plan is unique and carries risk. For details on your plan’s provisions, please refer to your plan document or contact your Human Resources benefits representative. Because NQDC plans have special considerations and complexities, before you enroll or make any elections you should consult your own tax and legal advisors to determine whether participating in a nonqualified deferred compensation plan is right for you.
If you’ve already enrolled in deferred compensation with your employer, you may log in below to access your account. If you are eligible to participate and haven’t enrolled yet, please reach out to your employer for more information on how to get started.
The NQDC annual enrollment period generally takes place in the fourth quarter, and elections must be made for each plan year. Keep an eye on your inbox for annual NQDC enrollment window communications.
Explore educational resources designed to help you reach your financial goals and make the most of your workplace benefits.
1 The time and form of distribution must be selected at the time of the deferral election and generally cannot be accelerated.
2 Notional investments do not reflect an interest in, or control over, real investments, but are used to determine the amount payable to the employee in the future.
3 Contributions to, and earnings under, the plan are generally subject to FICA and FUTA taxes once they become vested.
4 Subject to your specific NQDC plan provisions.
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