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good morning everybody it is Jeanie Fisher a certified financial planner and senior foreign key adviser with our key and I talked a lot about qualified plans ERISA plans but today we're going to talk about the non-qualified deferred compensation plan now this is not an ERISA plan and because of that it is not subject to ERISA standards and that really carries two primary benefits for the employer they are now allowed to actually discriminate on who they offer the plan to so they don't have to necessarily provide it to every employee on the employee side the IRC contribution limits are not there so you can actually defer a much larger portion of your income so let's walk through how this works for let's say an executive you're earning $300,000 a year you know you need to save money for retirement or long term goals you max out your 401k or your qualified plan but you've hit that limit pretty quickly right the 19,000 or the 25,000 if you're over the age 50 but in order for you to meet your goals you need to save a little bit more if your employer offers a non-qualified deferred compensation plan you could have the opportunity to defer even more of your income now typically you get to decide how much that is you get to decide once per year and a lot of plans actually allow you to pick different amounts every years so you could say I'm gonna earn 300,000 and I'm going to elect to defer an additional $50,000 of my income into the future now from a financial planning perspective this can be a valuable tool because it grants us a degree of control over the timing of that income now every single plan is different every single plan will have different payouts but some can be really flexible so as we build a comprehensive financial plan and we're mapping out those future cash flows we will be paying specific attention to your projected income in each year and if we could time some of that income maybe in a lower income year or maybe post retirement that could smooth out your income stream and lead to maybe some potential tax benefits down the road again just keeping an eye on where your income bracket is going to be now as always when making a tax decision consult with the CPA consult with your own tax advisor but the timing or being able to control the timing of your income can be a valuable tool here's the other thing that's really great from a timing perspective we can match your income to a specific goal so maybe you have children going to college or maybe you have some gap years where you intend to retire but your pension doesn't start for another five years maybe we can time this deferred comp to payout during those gap years so again the name of the game is timing and being able to control when you accept or acknowledge that income now when you defer the income you're deferring the federal income tax on it now you still have to pay the FICA taxes but you're deferring the federal income tax into the future but that's also where some clients can get tripped up so here's a couple of things that you want to be aware of if you're using a non-qualified deferred comp plan first off some plans will call for an immediate payout after termination so it's not unusual for a plan to say if you terminate employment for any reason we're going to lump sum payout your benefit in six months now remember you deferred that income you deferred the taxes so if that happens you could have a potentially large income event and a potentially large taxable event in one year so be aware of that number two pay particular attention to what the option the payout options are some allow for a regular annuity some are set five ten or fifteen years just be aware of your plane because every plan is different and you just want to know what to expect in the future know when the money pays out we can't roll it into an IRA we can't do anything like that it's non qualified money remember it's not like your 401 K can you just roll it into something so taxable income in the future is what you're looking at and then I do want to point out that some plants offer a guaranteed type return but some let you do an investment like approach similar to your 401 K if you're building your own investment strategy and your non qualified plan be cognizant of the timing of the potential distribution and what your goal is what's the time horizon of your goal is it short term is it long term make sure you match the investment strategy to the goal now be aware of one thing one major difference when you defer money into a 401k or a 403b that money is placed into a trust on your behalf non-qualified deferred comp plans are not like that okay it's really more like a handshake your employer is promising to pay you this income down the road now there are some fancy things we can do with Rabbi trust but at the end of the day that non-qualified deferred comp that promise is subject to the employers liabilities general assets predators all that stuff so be cognizant of the financial stability of your company and know that this really is more of an informal agreement between you and your employer the assets have not been placed in a trust on your behalf so that's it on non-qualified deferred comp they can be really really really great planning tools especially for high-income earners and ability to save a lot more money defer and come down the road but you kind of have to tiptoe around and make sure you understand them because eventually your Zieve that income and OB tax and you just want to know how that fits best into your plan so work with a certified financial planner work with a with someone who can actually map out those cash flows and advise you on the best way to use your non qualified plan that's it for today we'll followup with you soon you