Nonqualified Deferred Compensation Plans (NQDC)
NQDC plans allow high-income earners to defer a portion of their salary beyond qualified plan limits like 401(k)s. These plans are used to reduce current income tax and save for retirement.
Nonqualified Deferred Compensation Plans (NQDC)
NQDC plans are often used by executives and other highly compensated employees to defer income until retirement or a future date. Unlike 401(k)s or other qualified plans, NQDCs do not have IRS-mandated contribution limits. This allows participants to defer more income than typically permitted under tax-qualified plans.
The deferred income is not taxed until it is paid out, potentially lowering the employee’s taxable income during their working years. However, one of the main risks of NQDC plans is that they are not protected from the company’s creditors. If the company goes bankrupt, the deferred income could be lost. These plans are an important tool for high earners looking to manage taxes and retirement savings strategically.