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Old 09-14-2018, 04:19 PM
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Default Nonqual deferred comp plans

Anyone have one of these at work? In 2019 I'll max the HSA, IRA, 401k, so I'm thinking of what else I might do to invest other than a brokerage account. The plan allows us to defer a portion of our salary and/or bonus for any duration >5 years. During that time, we can put it in cash or a number of investments like an S&P index fund. Then it gets paid as income and taxed at that later date. So it would let me push out some income into retirement (~10 years, I hope) when I'll have a lower income.

So, what all should I consider here? Obviously tax rates could easily change in ten years, so there's a risk. And the deferred income is a liability of the company, so if they fold then I don't get paid. My company is over a century old and is Fortune 100, so it's a small risk but certainly nonzero.

Is this a viable option, or should I just stick to my brokerage account? Or something else?
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Old 09-14-2018, 04:37 PM
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I think you could accomplish something similar in a low-cost variable annuity while retaining full control, having more investment options, and potentially lower fees. However even the low-cost VAs with lower fee funds will end up costing 50-100 bps of AUM in fees.

The advantage is you still get the tax deferral and you don't necessarily need to draw funds from it on a predetermined date.
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Old 09-14-2018, 04:59 PM
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I think you could accomplish something similar in a low-cost variable annuity while retaining full control, having more investment options, and potentially lower fees. However even the low-cost VAs with lower fee funds will end up costing 50-100 bps of AUM in fees.

The advantage is you still get the tax deferral and you don't necessarily need to draw funds from it on a predetermined date.
Can I do that and not have that money count as taxable income in 2019?

Sorry, total noob here on this stuff.
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Old 09-14-2018, 06:30 PM
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Can I do that and not have that money count as taxable income in 2019?

Sorry, total noob here on this stuff.
Whoops, nevermind. The VA would only allow you to defer taxes on the investment earnings... funding it with non-qualified money would mean it was taxed when you earned it.

Thatís a nice option offered by your employer.
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Old 09-14-2018, 06:39 PM
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Thatís a nice option offered by your employer.
Yeah, the guys working at Lehman Brothers thought that too.
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Old 09-14-2018, 08:52 PM
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So, what all should I consider here?
Behold. The power of Google

https://www.fidelity.com/viewpoints/retirement/nqdc

https://www.investopedia.com/article...plans-work.asp

Last edited by chicken_po_boy; 09-14-2018 at 09:01 PM..
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Old 09-16-2018, 11:02 PM
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Originally Posted by George Frankly View Post
Anyone have one of these at work? In 2019 I'll max the HSA, IRA, 401k, so I'm thinking of what else I might do to invest other than a brokerage account. The plan allows us to defer a portion of our salary and/or bonus for any duration >5 years. During that time, we can put it in cash or a number of investments like an S&P index fund. Then it gets paid as income and taxed at that later date. So it would let me push out some income into retirement (~10 years, I hope) when I'll have a lower income.

So, what all should I consider here? Obviously tax rates could easily change in ten years, so there's a risk. And the deferred income is a liability of the company, so if they fold then I don't get paid. My company is over a century old and is Fortune 100, so it's a small risk but certainly nonzero.

Is this a viable option, or should I just stick to my brokerage account? Or something else?
I'm not sure you want to be betting on lower taxes in the future. Political pendulum swung decently far to the right in 2016 and it appears to already be heading back the other way. Lots of democratic socialists winning primaries right now too and they have lots of plans to tax they "rich" to pay for a bevy of social programs. If there's a blue wave in congress and a dem president in 2020 I think we at least see a rollback of the recent tax cuts if not additional tax increases on top of that.
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Old 09-17-2018, 08:45 AM
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If you are nearing retirement, I would strongly consider deferring some income in the nonqual plan. Relatively low risk there, and top bracket income gets spread over future years in presumably lower brackets.

If you aren't nearing retirement, it's not quite as clear. The small risk of the company going bust is magnified over a long time horizon. Also, if you switch companies in the future presumably it would be for a higher salary or at least something close to current; in that scenario, the distribution would sit in a comparable or higher bracket after you leave. It depends on how they let you take the distribution post termination.
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Old 09-17-2018, 11:38 AM
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I'm not sure you want to be betting on lower taxes in the future. Political pendulum swung decently far to the right in 2016 and it appears to already be heading back the other way. Lots of democratic socialists winning primaries right now too and they have lots of plans to tax they "rich" to pay for a bevy of social programs. If there's a blue wave in congress and a dem president in 2020 I think we at least see a rollback of the recent tax cuts if not additional tax increases on top of that.
Yeah, if I was a betting man, I'd put my money on taxes going up vs down. We just passed a large, unfunded tax cut.
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Old 09-17-2018, 11:57 AM
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If you are nearing retirement, I would strongly consider deferring some income in the nonqual plan. Relatively low risk there, and top bracket income gets spread over future years in presumably lower brackets.

If you aren't nearing retirement, it's not quite as clear. The small risk of the company going bust is magnified over a long time horizon. Also, if you switch companies in the future presumably it would be for a higher salary or at least something close to current; in that scenario, the distribution would sit in a comparable or higher bracket after you leave. It depends on how they let you take the distribution post termination.
I'm hoping to retire somewhere in the 8-12 year range. I haven't reviewed the plan docs, so if I quit then I'm not sure if I have to cash it out, that's a really good point to consider.

And, based on current income vs what I expect I'll want to retire on (income-wise) it doesn't look like huge savings based on the current brackets.

Seems like a decent amount of risk, for a fairly small (potential) tax upside. I'll noodle on it a bit, but I'll probably pass and just keep putting money in my brokerage account.
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