I have zero experience with this. Apparently with my somewhat recent promotion, I now qualify for my company’s NQDC program.
Anything special I should know? My 401k is maxed out and we’re not eligible for a Roth. Depending on the year, we end up putting 8-10% of our post tax income into an investment account, so I can shift some of that to pretax investment?
Post by definitelyO on Dec 1, 2022 18:31:46 GMT -5
We offer one - IMO it's complex and the distributions have very specific timelines with limited ability to modify the payout timings.
The other thing that hangs me up is that if you defer a bonus it has be performance based vs. discretionary, and you have to elect the % contribution over a year in advance. Example: We have 2023 enrollment open now. So I can elect to defer 50% of my 2023 earned bonus - but the bonus I earn in 2023 doesn't pay until Q1 2024. and I have NO idea what the amount would be or what my financial situation would be in 15 months time (hopefully stable, right?)
We host multiple webinars and 1:1 meetings - but ultimately we ask that you talk with your tax advisor. You should also look at the investment fund line up. Typically what we've been told is that it's aimed toward more savvy investors - so it's not heavily weighted on Target Date funds like a 401K plan may be.
The funds are not protected in the event of corporate bankruptcy.
Post by steamboat185 on Dec 1, 2022 19:22:03 GMT -5
We’ve used one for the last 10 years or so and in general we really like the option. It does take more planning than a normal account as you have pick when you want the distributions (and if you don’t want them then you have to defer that amount from your new allotment.) For example we chose to defer some years at the start for a 5 year period now that we know we like it the original amount plus any additional amount gets defer to offset what is getting paid out. You do have to chose the deferred amount way in advance for DH it’s only 6 months not 15, but it’s still annoying when you don’t know what your bonus is. Additionally the way DH’s is set up is that if he leaves the company the money starts distribution immediately- this sort of gives him pause whenever he thinks about moving as he’d have to find another company that would allow him to defer the same level of compensation or the tax savings are gone. It’s definitely more complicated than anything else we use to save money, but so far we’ve liked it. Now that we have about 500k deferred we have a solid 10 years of income that will be distributed when dh retires (aiming for 45-46 so this might be more important for us than others).
I think all the rules for each plan are different, but the main warnings I see given on this are
1. If you terminate employment, you may have to take distributions or even lump sum immediately and it would all be taxable (depending on the plan's rules).
2. Is your company stable enough to be able to guarantee the payout in the long term? What if your company goes bankrupt?
We’re not a new company, publicly traded, and in an industry that a potential bankruptcy would likely be avoided by some form of bailout. My review of our financials (I also spend a ton of my job reviewing financial statements, so i think I'm pretty qualified on the subject) and what I know of how we manage the business doesn't give me any pause about a potential BK.