The highlights
- A financial check-in can help you make sure you’re on track with your goals—like paying down debt, saving for the unexpected, and investing for your future.
- Creating a money goals checklist may help you identify specific steps that can boost your financial wellness.
- Calculating your net worth is one simple way to measure progress toward your financial goals—and to build confidence along the way.
Nearly every public company—93% as of May 2025—offers a nonqualified deferred compensation (NQDC) plan to key employees, and around 44% of eligible executives participate.Disclosure 1 An NQDC plan provides employers with a tax advantage because the companies can deduct compensation when it’s eventually paid, not when it’s earned.
But what about the advantages for executives? Is participating in an NQDC plan the right move?
The question you should consider is whether deferring compensation today (with the promise of it being paid out to you 10 or 20 years down the road) makes financial sense. A key variable is whether your own income tax rates will be higher, lower, or about the same in the future. For many wealthy senior executives, the notion of dropping down into a lower tax bracket in retirement is a myth.
In order to more confidently make your determination with a wealth advisor, take a closer look at the fundamental pros and cons of NQDC plan participation.
Deferred compensation for executives: The pros
For most highly compensated executives, the primary value of an NQDC plan is its ability to offer a valuable opportunity to save for retirement. But there are other benefits to consider, including:
âś“Â No contribution limits
If you earn a substantial income and you want to be able to save significantly more than your 401(k) retirement plan limit, NQDCs offer that opportunity. Some participants opt to defer half of or even their entire annual bonus.
âś“Â Retirement income bridge opportunity
An NQDC can be used to generate income during the early years of your retirement. This allows you to delay drawing Social Security benefits and affords tax-deferred 401(k) assets an opportunity to continue growing until you reach age 72, when mandatory minimum distributions must begin.
âś“Â Flexible payout options
Depending on the plan design, you can typically choose either a lump sum distribution or opt to take withdrawals over a period of five to 10 years. This offers far greater flexibility than 401(k) or IRA accounts, which require withdrawals to begin at age 72 and impose penalties on withdrawals prior to age 59½.
âś“Â Income tax mitigation
Subject to your personal spending habits, moving into a lower tax bracket in retirement is a possibility—even for higher earners. Deferring income to your post-work years may therefore offer some tax efficiencies.
The question you should consider is whether deferring compensation today (with the promise of it being paid out to you 10 or 20 years down the road) makes financial sense.
Deferred compensation for executives: The cons
The rules governing when and how you can access the compensation you’ve deferred are unique to each NQDC plan. Some plans may permit short-term deferrals while others mandate that funds can’t be accessed until retirement. A plan may impose other restrictions that keep you from leaving a company before retirement, such as not allowing assets to be rolled over or distributed if you change employers. Other potential concerns include:
âś—Â Reduced protections/greater risk
When you participate in an NQDC plan, you essentially become a creditor of the company. If the firm should ever become insolvent and declare bankruptcy, you could potentially lose part or all of your expected compensation. Therefore, choosing a longer-term payout option (for example, over a 10-year period) means you’ll be taking on an additional 10 years of risk to gain additional tax deferral. Although you may be comfortable with deferring income now and putting it into the plan because you’re helping decide company strategy, what happens when you retire and have a decade of risk exposure without the kind of internal influence that comes from a leadership role within the firm?Â
âś—Â Lack of investment diversification
As a senior executive, there’s a strong likelihood you may already be too heavily weighted in your own employer’s stock. If things go badly for the company and your NQDC assets are in jeopardy, you will already have experienced a significant loss of value in your company stock holdings. Essentially, it serves as a double hit on your retirement savings.
âś—Â Unexpected payout acceleration
Even if you choose a flexible payout option over time, the company may have the right to accelerate your payout, depending on the terms of the plan. This means you could suddenly receive a large sum of money when you’re not expecting it, resulting in significant tax implications and additional retirement income planning complications.
Understanding your options
Whether your company currently offers an NQDC plan or is planning to in the future, a wealth advisor can help you determine the best path for you. Overall, by starting with your top priorities, an advisor can help you create a comprehensive financial plan that can change and evolve—just like you.
Trying to decide whether deferred compensation plan participation fits with your retirement income strategy?
Talk to a Truist Wealth advisor today.
