Benefit Now, Pay Later: Here’s What to Know About NQDC Plans

“Qualified” retirement plans include 401(k) and SIMPLE plans. These plans offer tax-advantaged contributions and potential earnings. On the other hand, “Non-qualified” deferred compensation (also called NQDC) plans don’t typically include those same tax advantages, yet they help companies compete for and retain top employees. How so? Here’s one example: imagine an employee has maxed out […]

orcutt financial learning about NQDC plans“Qualified” retirement plans include 401(k) and SIMPLE plans. These plans offer tax-advantaged contributions and potential earnings.

On the other hand, “Non-qualified” deferred compensation (also called NQDC) plans don’t typically include those same tax advantages, yet they help companies compete for and retain top employees.

How so? Here’s one example: imagine an employee has maxed out her 401(k) or 403(b) workplace savings plan.

At the same time, she still is in a position where she wants to save more for her retirement. In this example, a NQDC would allow her to defer a much larger portion of her compensation.

That means she would not pay income tax on that portion of her compensation, so it could grow, tax-deferred, until she received it at some point in the future. (She would pay Social Security and Medicare taxes, however.) In this example, you can see how this would be a benefit to high earners.

Is An NQDC Plan Right For You or Your Company?

If you’re considering offering this within your own business, or you want to learn more because an NQDC plan is available in your company, give us a call at (513) 576-1989.