Distributions : Advanced

Articles

NQDC Distributions: Learn The Rules Before It’s Too Late

by Bruce Brumberg

Understanding the distribution (i.e. payout) rules is crucial for getting the maximum value from your participation in a nonqualified deferred compensation (NQDC) plan.

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FAQs

Is it better to elect distributions as a lump sum or as an installment over a period of years, like an annuity?

Assuming they are able to elect the distribution type for retirement, some executives prefer to…

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Which is better: a class-year plan or an account-based plan?

First you must see what your company offers, and what is administratively possible. The preferable choice depends on…

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More FAQs:

What are class-year plans and account-based plans for deferrals and distributions?

UPDATES! What is a laddering or bucket approach to distributions?

When I retire, or when I reach the age when I thought I would retire, what happens with my NQDC distributions?

UPDATES! Can certain life events accelerate distributions, such job loss, disability, an unforeseeable emergency, or death?

What happens if my company refuses to pay my distributions?

Can distributions from NQDC plans affect distributions from qualified plans, such as a 401(k)?

Why did some executives in the past have the ability to receive a lump distribution of all their assets in the NQDC?

UPDATES! Can my company discontinue or terminate its nonqualified deferred compensation plan and give me a lump-sum distribution?

Can I roll over my distributions from the NQDC plan into an IRA and keep the tax-deferred status?

Can my company delay the payment without causing me to be hit with a penalty?

Can I change my distribution from a lump sum to an installment schedule, or vice versa?

UPDATES! I plan to move. What if I live in a different state at distribution than the state where I worked? How is the distribution taxed?

UPDATES! How is the income distributed to me reported on my tax return?

UPDATES! If I am an outside director or consultant, is the income at deferral and distribution reported on a 1099-MISC?

What appears on my W-2 for the year of income distribution?

How does my company obtain money from me to pay withholding taxes when I receive distributions under the NQDC plan?

What appears on my W-2 if my plan has violated Section 409A?

Which tax rates apply to distributions I receive in company shares: ordinary income or capital gains? What is the value of the distributed shares based on?

UPDATES! Do senior executives or directors need to make personal SEC filings, such as Forms 4 and 5, for NQDC participation or distributions?

UPDATED! My tax rates are likely to rise in the future. Can I change my deferral election and instead receive the money this year? Similarly, can I move a scheduled future income distribution into this year?

When I receive distributions from my NQDC account, will I need to make estimated tax payments?

NEW! Can I forfeit or modify my NQDC plan benefits?

How do the taxes under the Affordable Care Act affect my Medicare tax rate and my planning for nonqualified deferred compensation?

Is there a distribution-election strategy when I’m uncertain in the intermediate term about my own cash flow and the company’s finances?

UPDATES! My company plans to spin off my division. What can happen to my NQDC plan and my elections for deferrals and distributions?