Obviously, nobody asked the marketing men before coming up with this 1. Who on the planet thought up the title 'non-qualified deferred compensation'? Oh, it is detailed ok. But who would like anything 'non-qualified'? Do you want a 'non-qualified' doctor, lawyer, or accountant? What's worse is deferring payment. Just how many people desire to work today and get paid in five years? The thing is, non-qualified deferred compensation is a great idea; it only includes a awful name.

Non-qualified deferred compensation (NQDC) is a effective retirement planning tool, particularly for owners of closely held corporations (for purposes of the article, I am just likely to cope with 'C' corporations). NQDC plans are not qualified for two things; some of the income tax benefits afforded qualified pension plans and the employee safety provisions of the Employee Retirement Income Security Act (ERISA). What NQDC plans do offer is freedom. Great gobs of mobility. Flexibility is some thing capable programs, after decades of Congressional tinkering, lack. Losing of some tax benefits and ERISA conditions might seem an extremely small price to pay when you consider the numerous benefits of NQDC plans.

A NQDC program is a written contract between the corporate workplace and the staff. The contract includes compensation and employment which will be offered in the future. Dig up further on the affiliated essay - Hit this web page: continue reading. The NQDC agreement gives to the worker the employer's unsecured promise to cover some potential benefit in exchange for services to-day. The promised future advantage might be in one of three basic forms. We discovered home business by searching Google. Some NQDC plans resemble defined benefit plans in that they promise to cover the worker a fixed dollar amount or fixed proportion of pay for a time period after retirement. Another kind of NQDC resembles an outlined contribution plan. A fixed amount goes into the employee's 'account' each year, often through voluntary pay deferrals, and the worker is entitled to the balance of the account at retirement. The ultimate form of NQDC approach provides a death benefit to the employee's designated beneficiary.

The key benefit with NQDC is flexibility. With NQDC plans, the employer can discriminate openly. The manager could pick and choose from among employees, including him/herself, and benefit only a select few. The employer may treat these opted for differently. The power stated do not need to follow some of the rules connected with qualified plans (e.g. the $44,000 for 2006) annual limit on contributions to defined contribution plans). The vesting schedule may be whatever the company would love it to be. By using life-insurance products, the tax deferral characteristic of qualified plans may be simulated. Correctly drafted, NQDC programs do not lead to taxable income for the staff until payments are made.

To acquire this freedom the employee and employer must give some thing up. The employer loses the up-front tax deduction for the contribution to the program. Nevertheless, the manager will get a reduction when benefits are paid. The security is lost by the employee offered under ERISA. However, often the employee involved is the business owner which mitigates this concern. Also you'll find practices offered to provide the non-owner worker with a measure of security. In addition, the marketing guys have gotten hold of NQDC strategies, so you'll see them named Supplemental Executive Retirement Plans or Excess Benefit Plans among other names.. For other interpretations, please check-out: go there.

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