Nonqualified Deferred Compensation for Executives
Questions to bring to your next planning meeting
What do the plan document and my elections say about deferral limits, employer credits, vesting, fees and investment choices?
How large is my total exposure to this employer, and could my retirement plan withstand a loss of the benefit?
When would payments arrive if I retired, changed jobs, became disabled or continued consulting?
Can I use annual deferral buckets, and how are installments treated for later election changes?
How does payroll handle FICA, and what additional withholding or estimated payments might I need?
Does my proposed state move and payment schedule qualify for federal protection, and how would my new state tax it?
What happens in an acquisition, and are my beneficiary designations coordinated with my estate plan?
How do these payments fit alongside other retirement income and my family’s cash needs?
Before making an election, bring the plan document, current balance and payout choices to your financial advisor, tax professional and benefits counsel. A useful NQDC strategy connects the tax savings to a payment schedule you can live with and an employer exposure you can afford.
Educational disclosure: This article provides general information based on law and guidance reviewed as of October 7, 2026. It is not individualized investment, tax or legal advice. Outcomes depend on your circumstances, plan terms, applicable state law and future changes. Consult your advisors before making elections or changing arrangements.
Sources and further reading
Numbered links in the article identify the supporting statutes, regulations and agency guidance. Statutes and Treasury regulations are primary legal authority; IRS publications explain administration. Apply the law to the actual plan and facts.
1. IRC §409A and Treasury regulations §1.409A-1
2. Treas. Reg. §1.409A-2 Deferral elections
3. Treas. Reg. §1.409A-3 Permissible payments and liquidation exceptions
4. IRC §3121(v)(2) FICA special timing and nonduplication
5. Treas. Reg. §31.3121(v)(2)-1 FICA valuation and earnings rules
6. IRS Publication 15 for 2026 Supplemental wages and withholding
7. IRS Net Investment Income Tax
8. 4 U.S.C. §114 State taxation of retirement income
9. Illinois Department of Revenue Publication 120 Retirement Income
10. IRC §691 IRD and estate tax deduction
11. IRC §1014(c) No basis adjustment for IRD
12. IRC §162(m) Covered employees and deduction limit
13. Public Law 119-21 §§70416 and 70603 Effective dates and expanded employer rules
14. IRC §404(a)(5) Employer deduction timing
15. ERISA §201(2) Top hat participation and vesting exemption
16. ERISA §401(a)(1) Top hat fiduciary exemption
17. 29 CFR §2520.104-23 Alternative reporting and electronic filing
18. Treas. Reg. §1.280G-1 Golden parachute payments including accelerated vesting
19. IRC §4999 Participant excise tax on excess parachute payments
20. IRC §457 Tax exempt employer plans
21. IRC §457A Certain tax indifferent employers
22. IRC §4960 Tax exempt organization compensation excise tax
23. IRS Notice 2005-1 Q&A 7 Partnership arrangements
24. Treas. Reg. §1.409A-1 Covered plans and separation from service
25. IRS Notice 2000-56 Rabbi trusts and employer creditors
