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Ten Financial-Planning Rules Everyone With Nonqualified Deferred Compensation Needs To Know

To be a well-informed participant in your company's nonqualified deferred compensation (NQDC) plan, you must know these related financial-planning concepts.



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Key Points in This Article
The financial-planning advantages of nonqualified deferred compensation rest on the power of pre-tax savings and tax-deferred compounding over time.
However, nonqualified deferred compensation also poses risks, as you cannot obtain your money early without paying a substantial penalty, and in corporate financial distress your deferred amounts will be treated like those of any unsecured creditor of the company.
Decisions about whether or how much to defer may want to consider the likelihood of higher tax rates in the near future. Once you have deferred compensation, you will probably have investment choices to make. Understand the tax consequences, and what happens upon job termination.