Alert: Impact of Tax Rate Changes on NQDC Deferral Decisions

It’s one of the most frequent questions we get from executives and key employees who are eligible to participate in nonqualified deferred compensation plans, along with their financial advisors. Do the current lower tax rates make salary and bonus deferral less appealing?

In short, the general guidance from the expert contributors to myNQDC.com is that you need to consider whether your tax rate at the time of distribution is likely to be lower or higher than it is at the time of deferral. If you think your rate will be lower and you feel secure about your company’s financial situation, then pre-tax deferrals make sense. Deferrals can also keep your income below the current triggers for higher taxes.

The 2020 presidential election, already constantly in the news, may be worrying you with the prospect of higher tax rates should the White House and Senate change parties. The following content from our financial planning and taxes sections has useful insights. (For full access to myNQDC, see the section further below about individual premium memberships.)

Tax Reform: Good Or Bad For Pretax Compensation Deferral?

David Hauptman

Tax reform has complicated the decision of whether to participate in your company’s NQDC plan. This article provides a perspective on how to decide whether or not to defer pretax compensation.

Tax Reform And The Impact On Nonqualified Deferred Compensation Plans

Michael Nolan

Tax changes have spurred an unprecedented level of curiosity about NQDC plans. The timing for these plans could not be better for high earners and their employers. This article presents some key deferred compensation trends to watch.

Advantages To Pre-Tax Deferral Of Income After Tax Reform

Steve Broadbent and Chris Nyland

Employees who once routinely deferred compensation are now rethinking those habits after tax reform under the Tax Cuts and Jobs Act. One concern is whether it may be better to take income today because of uncertainty about tax increases in the future. This article shows how you should consider tax changes and investment returns when analyzing whether to participate in your company’s NQDC plan.

Future Higher Tax Rates Would Not Reduce The Current Appeal Of Nonqualified Plans

William L. MacDonald

NQDC arrangements remain a valuable planning tool for people with high incomes. This article discusses the reasons why current tax rates have made NQDC plans attractive. It also examines how certain features of plan design can cause you tax problems.

Tax Changes That Affect Your Planning For Nonqualified Deferred Compensation

Bruce Brumberg

The enhanced capacity for tax planning is one of the main attractions of nonqualified plans. When your tax rates increase, the advantages of NQDC plans grow. This article explains the impact of tax changes on your NQDC.

At year-end, when I am deciding on salary deferrals into my nonqualified plan for the year ahead, what should be the top issues in my decision-making?

In NQDC plans, the fourth quarter is the most common period for electing salary deferrals in the year ahead. One ongoing issue for deferral planning is the need to consider the tax changes of recent years, including the additional Medicare taxes for high earners.

Licensing And Bulk Premium Memberships

Want to license readable, high-quality content on NQDC to distribute to plan participants, clients, and prospects? Find out about our corporate services in the About Us and Licensing sections of myNQDC. Please contact us (617-734-1979, info@mystockoptions.com) to obtain more information about licensing content for your website, print materials, and/or newsletters, and for premium memberships at special bulk rates for your staff.