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David P. McCabe,
WMCP®, ChFC®, CLU®
Financial Planner
Nathaniel D. High, RICP®
Financial Planner
Nicholas J. Over, CFP®
Financial Planner
Sara E. Martin
Client Relations Manager
Jennifer A. McCabe
Client Relations Specialist
jennifer.mccabe@prudential.com
Centuria Financial Group
2333 Baltimore Blvd Suite B
Finksburg, MD 21048
Phone: 443-952-7232
July/August 2024
Nonqualified Deferred Compensation Plans Explained
Many employers consider nonqualified deferred compensation (NQDC) plans crucial in attracting and retaining top talent, with 58% offering these plans to key employees who can afford to invest more after maxing out their 401(k).
The Nonqualified Difference
Unlike a 401(k) plan, an NQDC plan doesn’t have to meet Employee Retirement Income Security Act requirements, such as an annual contribution cap, age restrictions on withdrawals, and required minimum distributions. You gain greater flexibility and more options. The tradeoff is that NQDC plans carry additional risk.With an NQDC plan, you determine how much earned income to defer each year and schedule when to receive your deferred income. You might select a lumpsum distribution or installments starting at a particular date. You could have income distributed to meet financial goals or choose to wait until retirement.
Investing Contributions
Contributions aren’t invested directly. Instead, you designate investment choices for bookkeeping purposes. Your employer uses your choices as a benchmark to calculate the appropriate investment returns owed during the deferral period. Your employer will distribute your deferred income to you later, along with the investment growth you would have earned.Tax Advantages
As with other deferred compensation plans, you defer current income tax on your contributions and any plan growth until they’re distributed. You reduce your current taxable income and can schedule your distributions to arrive in lower tax bracket years.Detractions
You could suffer a complete loss if your company encounters financial hardship and may possibly have to forfeit your deferred income if you leave your employer before the distribution date. That distribution date can be difficult to change after it’s been set. Also, you can’t borrow from NQDC plans or roll distributions into an IRA or other tax-deferred retirement vehicle.Having your legal, tax and financial professionals review your plan’s agreement and financial situation can help you decide whether to go with your NQDC plan.
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Centuria Financial Group is not affiliated with Prudential Financial. Centuria Financial Group sells insurance products of Prudential Financial's affiliated insurance companies in addition to products of non-affiliated insurance companies. Centuria Financial Group is authorized to sell and service certain insurance products of Prudential Financial companies as well as use this material. Centuria Financial Group and its representatives do not give tax or legal advice. Please consult with your own advisors regarding your particular situation. Offering financial planning and investment advisory services and programs through Pruco Securities, LLC (Pruco), under the marketing name Prudential Financial Planning Services (PFPS), pursuant to a separate client agreement. Offering insurance and securities products and services as a registered representative of Pruco, and an agent of issuing insurance companies. 1-800-778-2255. Sara E. Martin and Jennifer McCabe are employed by David McCabe and not The Prudential Insurance Company of America or its subsidiaries.
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