A nonqualified deferred compensation (NQDC) plan is a great way for employers to attract and retain key talent. It also represents a potentially massive tax savings opportunity for highly compensated employees. There is a lot that you need to know about these plans before deciding to participate in one, however. So, let’s get into the basics.
A nonqualified deferred compensation (NQDC) plan allows employees to earn their pay, potential bonuses and other forms of compensation in one year but receive those earnings in a future year. This also defers the income tax on the compensation. It helps provide income for the future, and there’s a possibility for a reduced amount of income tax payable if the employee is in a lower tax bracket at the time of the deferred payment.
