Nonqualified deferred compensation plans

[Phantom Spike]

What's everyone's thoughts on nonqualified deferred compensation (NQCD) plans? Worth contributing to or no great advantage? And if it's a good option, when would you request distribution?

And another question: I understand that 457bs are a type of NQCDs, but 457bs have an annual contribution limit (I believe $22.5K for 2023) and withdrawal rules similar to 401ks (i.e., 10% penalty if you withdraw before a certain age). The type of NQDC I'm referring to here states no contribution limits and you can choose get your distribution at any age, but once you make that choice, no early withdrawal allowed. Am I right in my understanding that these are two different kinds of NQDCs?

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[abolt18]

How Non-Qualified Deferred Compensation Plans Work

These tax-advantaged retirement savings plans have their pros and cons, and employers and employees must follow strict guidelines.

www.investopedia.com

Non-Governmental 457(b) Deferred Compensation Plans | Internal Revenue Service

Non-Governmental 457(b) Deferred Compensation Plans

www.irs.gov

457 Plan

A 457 plan is a tax-advantaged retirement savings account available to many employees of governments and nonprofit organizations.

www.investopedia.com

 

[cincincyreds]

What's everyone's thoughts on nonqualified deferred compensation (NQCD) plans? Worth contributing to or no great advantage? And if it's a good option, when would you request distribution?

And another question: I understand that 457bs are a type of NQCDs, but 457bs have an annual contribution limit (I believe $22.5K for 2023) and withdrawal rules similar to 401ks (i.e., 10% penalty if you withdraw before a certain age). The type of NQDC I'm referring to here states no contribution limits and you can choose get your distribution at any age, but once you make that choice, no early withdrawal allowed. Am I right in my understanding that these are two different kinds of NQDCs?

The risk of the 457 is of the hospital going out of business. It does happen and you end up with nothing. And the same thing the nonqualified plan. If the group you are working for goes out of business you are out that money. These things were designed for executives to play games and they know when to get out and not lose the money.

 

[FutureInternist]

What's everyone's thoughts on nonqualified deferred compensation (NQCD) plans? Worth contributing to or no great advantage? And if it's a good option, when would you request distribution?

And another question: I understand that 457bs are a type of NQCDs, but 457bs have an annual contribution limit (I believe $22.5K for 2023) and withdrawal rules similar to 401ks (i.e., 10% penalty if you withdraw before a certain age). The type of NQDC I'm referring to here states no contribution limits and you can choose get your distribution at any age, but once you make that choice, no early withdrawal allowed. Am I right in my understanding that these are two different kinds of NQDCs?

AFAIK….

457b are for non-profit or gov jobs & hence that cap is set by the gov

NQDC cap is set by the individual “for-profit” entity

They both have same withdrawal rules as far as penalties etc
And they both have “must start withdrawing by age X” although that may change based on SECURE act

But you can get a penalty free distribution if you leave the job or retire before 59.5 yoa

However you can only roll a 457 into another 457, and NQDC into NQDC (since the caps are different)
There is another option whereby you take the distribution, pay taxes on it & roll it into a Roth IRA thereby making more than the yearly allowed max in one fell swoop

Some companies offer to handle your 457b or NQDC for a few years after you have quit… but if you take the lump sum & it doesn’t change your tax bracket, then it may be more beneficial to do that.

Additionally, both 457b and NQDC are subject to creditors in the event of bankruptcy or a big lawsuit etc, but I guess one could resign as soon as the writing is on the wall & cash it out?

I went from non-profit to for-profit so I couldn’t roll over.. so I took the whole lot & just put it towards my home loan

 

[The White Coat Investor]

Every one of these is unique and the devil is in the details.

Also, this might be an insurance product in disguise so get the details.