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Nonqualified Deferred Compensation (NQDC) Plans

Nonqualified Deferred Compensation (NQDC) Plans

 An NQDC plan is a savings option provided by some employers, distinct from 401(k) or profit-sharing plans, yet similarly intended for setting aside income for future use.

Unlike traditional retirement plans, NQDCs permit the deferral of a larger portion of income, making them particularly beneficial for those looking to save beyond standard limits.

Quick Facts About NQDC Plans

  • NQDC plans do not allow early access to benefits through loans or Section 401(k) hardship events *

  • Distributions cannot be rolled over into another tax-deferred account

  • NQDC plans allow for very limited early access to benefits in limited situations such as an unforseeable emergency event. **
     

    * Except in very limited situations and for no more than $5,000/yr.

    ** Which is more limited than a 401(k) hardship event

Optimizing Employer Stock Option & Grants

  • NUA - Net Unrealized Appreciation
  • ISOs - Incentive Stock Options 
  • RSAs - Restricted Stock Awards
  • RSU -Restricted Stock Units 
  • ESPP - Employee Stock Purchase Plan 
  • LTIPs - Long Term Incentive Plans
  • SARs - Stock Appraciation Rights 
  • NSO - Nonstatutory Stock Options 
  • Grants
  • Phantom Stock

NQDC In The News

Jim Harbaugh, the well-known football coach, made headlines in 2016 for something other than football. Jim incorporated a Non-Qualified Deferred Compensation plan into his financial strategy. This approach allowed him to defer a significant portion of his earnings, setting it aside for future use. 

By leveraging an NQDC plan, Harbaugh was able to manage his income distribution over time, which offers potential tax benefits. His use of NQDC highlights how high-earning professionals can strategically plan for their financial future beyond traditional retirement options. 

The Plan Implementation (PI) Process Overview

Plan design exploration and analysis 


Document and plan structure implementation 


Participant communication and enrollment 


Informal funding by the employer


Initial and ongoing administrative recordkeeping requirements 


Ongoing service responsibilities by the advisor at both the plan sponsor and plan participant levels


Not Sure Where To Start?Schedule A Meeting

If you believe you could benefit from working with a financial professional, let’s review yours goals to see if you’re a good match for our practice.