- Welcome to Curt's Chalk Talk, the Executive Acronyms series. I'm Curt Sheldon, with C.L. Sheldon & Company, and today we're going to talk about NQDC, or Non-qualified Deferred Compensation.
This type of plan is very similar to a 401 in appearance, but that's about it. Like a 401, you defer compensation to some point in the future. Unlike a 401 , these funds do not go into a trust fund, but instead become a general liability to the company. In essence you're loaning that future payment to your company. This creates a substantial risk of forfeiture which allows the money to be deferred income, and in this case, unlike, again, a 401 , social security and Medicare taxes, until such time that the money is actually received.
Now as mentioned you will owe income, social security, and Medicare taxes on the income, but the social security tax is based upon the year in which you earned the money. So it is unlikely that you'll have to pay it, as most people who get this type of plan are high-income earners and above the social security cap.
A Non-qualified Deferred Compensation plan can offer several different types of investment options, and you'll want to see what your company offers before you decide whether you want to take the plan or not.
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