Nonqualified plans are designed to meet the special retirement needs of key executives. Plans can be offered in addition to 401(k) and other qualified plans, allowing key executives to increase their retirement savings. Plans offer some tax advantages.
Nonqualified plans allow employers to recruit and retain the most talented executives. While nonqualified plans are eligible for some of the tax advantages offered by qualified plans, they offer plan sponsors more flexibility:
Note: Deduction on the contribution is taken the year the income becomes taxable to the employee.
Nonqualified plans allow executives to accumulate a larger asset base for retirement than traditional plans because these plans are not subject to annual contributions limits. Employees are able to defer taxation until retirement when they are likely in a lower tax bracket. Tax advantages include:
Note: Benefit is not secured. Employee must rely on the employer’s promise to pay the deferred compensation in the future.