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Deferred Compensation Plan suggestions
Old 01-24-2020, 02:49 PM   #1
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Deferred Compensation Plan suggestions

I w*rk for a mid-sized public company, so benefit programs are not so elaborate, but appears to be more and more open-minded.

I don't need all my pay (base, bonus, options, RSUs, etc.) and in a high tax bracket.

I would like to start a conversation with my HR Benefits department regarding a Deferred Compensation plan. This is in addition to the standard Fidelity 401k plan.

Any suggestions or links anyone can point me to? Thanks in advance.
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Old 01-24-2020, 02:54 PM   #2
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How financially strong is your employer? Most non-qualified deferred comp plans are a general creditor in the event the employer files for bankruptcy... after bonds issued by the company... so there is some credit risk to consider.
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Old 01-24-2020, 03:01 PM   #3
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How financially strong is your employer?
The company annual sales is about 700M with 300-400M in cash. It's a technology company so it can change quickly, but publicly traded for over 8 years. Company continues to be solid and leader in the industry, but I think of Worldcom and Enron.
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Old 01-24-2020, 03:13 PM   #4
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Another thing to consider is your current tax bracket vs the tax bracket you expect to be in when you withdraw that unqualified tax-deferred money.... you have to be in a higher tax bracket now to make it worthwhile.

Typically a company has formal plans for employees at certain levels and/or amounts of annual compensation. While I never qualified for nonqualified deferred comp, I had the impression that they come to you rather than the other way around... but I might be wrong on that.

What is the matter with taking the income, paying the tax and then investing in equities that have preferential incoem tax rates on qualified dividends and LTCG? (Although I do see that you are in California so their onerous state income tax may be part of the whole thing).
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Old 01-24-2020, 03:31 PM   #5
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Ok. Sure there is some risk. Knowledge of the company's financials and future potential are key. Ours was created to allow highly compensated employees to defer comp due to limitations in 401k giving. At the end I could only put in 3% plus catch up into our 401k but 40% of salary into the deferred program. The company continues to grow despite my retirement so I have no issues. However if you're a bit skittish you can suggest more limited payout periods with a 5 year max instead of a 10 year. Good luck
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Old 01-24-2020, 03:47 PM   #6
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What is the matter with taking the income, paying the tax and then investing in equities that have preferential incoem tax rates on qualified dividends and LTCG? .
Well, I would think the "paying the tax" part is what's the matter! NQ deferred comp plans are not for everyone, and as pointed out, they do carry some risk as well. However, in MY case, I greatly benefitted from such a plan. I deferred a lot of taxes during my highest-earning years, and was able to structure the payout such that I am spreading the entire balance over my first 12 years of retirement (FIREd at 56), ending up in a significantly lower tax bracket. Again, may not be for everyone, but I feel very fortunate to have been able to participate.
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Old 01-24-2020, 03:55 PM   #7
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Another thing to consider is your current tax bracket vs the tax bracket you expect to be in when you withdraw that unqualified tax-deferred money.... you have to be in a higher tax bracket now to make it worthwhile.

Yes, my tax bracket currently is at the higher end plus the high CA state tax. In a few years when I RE, I see myself living off taxed savings plus relocation to a lower tax state, so my tax obligations could change from high 40% to 12%, so that's my incentive to suggest to the company.

Typically a company has formal plans for employees at certain levels and/or amounts of annual compensation. While I never qualified for nonqualified deferred comp, I had the impression that they come to you rather than the other way around... but I might be wrong on that.

Company has no current plans or offerings, so I want to suggest a benefit that some might gain value from. I've seen a program at another company, anyone Director and above or highly compensated employees,i.e. over $150k or more would be allowed to participant. This would be voluntary. Employee gets to define voluntary % of base and bonus as the contribution.

What is the matter with taking the income, paying the tax and then investing in equities that have preferential incoem tax rates on qualified dividends and LTCG? (Although I do see that you are in California so their onerous state income tax may be part of the whole thing).

See above on taxes, trying to lower my Federal and State taxes.
Above blue text added.
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