NQDC Deferral Election Calculator
Non-qualified deferred compensation (NQDC) lets you defer current income to later years. The tax math is simple: defer at your current bracket, pay at your retirement bracket. When retirement bracket is meaningfully lower, the savings compound. When it isn't, deferral is neutral or negative.
What this calculator doesn't model
- Firm solvency risk. NQDC balances are unsecured creditor claims. If the company goes bankrupt, deferred comp is at risk.
- 409A flexibility cost. Once elected, distributions can't easily be accelerated. This creates liquidity risk later in life.
- Opportunity cost. Deferred amounts typically grow at firm-set reference rates (4-7%) which may underperform market returns over long horizons.
- Tax law changes. Rates 10+ years out are speculative.
Decision framework: defer heavily when (1) your retirement bracket will be meaningfully lower than current, (2) you have strong firm solvency confidence, and (3) your current financial situation doesn't need the cash flow. Defer lightly or not at all if any of those conditions fail.
The 409A distribution rules that matter
Your election locks in the distribution date or trigger (often "retirement" or "separation from service"). Changes after are constrained:
- Re-deferral: must be made at least 12 months in advance, and the new distribution date must be at least 5 years later.
- Acceleration: generally prohibited. No pulling money out early.
- Separation from service: triggers payout per elected schedule.
- Specified employee delay: for key employees of public companies, distributions on separation must be delayed at least 6 months.
Related reading
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