Would you put more than 6% in a Non Qualified Deffered Compensation Plan?

[Machine99]

Our current situation:

I make $135k/yr. Wife does not work.
We are 47 and 50. I hope to retire at 57!
Last year we really started focusing on retirement savings. We paid off 2 cars, 3 credit cards, and are currently debt free except for our home. We plan to save/invest at least $50k/yr

Current assets:
IRA totals: $410k
Roth IRA totals: $28k (will be capping each year)
Cash and taxable account $15k
Current NQDC balance $68K

The main reason I dislike the NQDC plan I am in is that is pays lump sum when I leave the company. For the first couple years with the company I was putting in 15%. But I soon realized that having a large lump sum payout was probably a bad idea. So this year I backed off my NQDC contribution to 6% just to get the match and will instead bump up contributions to my taxable account and some more into my money market savings account which gives 2%.

I'm concerned about having $300K+ in there when I retire and possibly getting bumped into a higher bracket which will result in the tax man getting a larger chunk.

On the flip side, I hate to not take advantage of pre-tax investing.

Would you keep it at 6% to get the maximum match or go up to 10-15%?

Thanks!

 

[RunningBum]

The whole idea is to defer income when you are at a higher tax rate now then you will be when you have to realize the income.

Taking a chunk of $300K+ clearly does not meet this criteria. You aren't "taking advantage of pre-tax investing" if you're going to pay a higher tax rate when you withdraw.

I would definitely not go beyond the match.

 

[OldShooter]

Be careful to not let the tax tail wag the investment dog. You need to run some numbers looking at net dollars in your pocket for your options.

Words like "concerned" and "possibly" really don't apply. Also, if you end up with more dollars in your pocket, why would you care about the "tax man getting a larger chunk?"

 

[The Cosmic Avenger]

You should at least get the match, and then maybe make the NQDC account about half of your conservative AA? So right now that account is about 13% of your total assets, if you're aiming for 75/25, that's just about right. The main drawback is that that account is kind of firewalled off, so you can't move money in and out, but that's why I said *half* of that part of your AA, so the other half is what you use to rebalance.


EDIT: So what I'm saying is, put all of that account in bonds or whatever conservative investment you want, and then another 12% of your IRA, and that would get you the match and lessen the tax burden.

 

[pb4uski]

The whole idea is to defer income when you are at a higher tax rate now then you will be when you have to realize the income.

Taking a chunk of $300K+ clearly does not meet this criteria. You aren't "taking advantage of pre-tax investing" if you're going to pay a higher tax rate when you withdraw.

I would definitely not go beyond the match.

+1 Given that the NQDC would bump you into a higher tax bracket when you retire there is no advantage to deferring paying 22% to later pay more than 22%... I'd stay with the match.

Aslo, IIRC NQDC are general claims of the company and are not protected in the vent of bankruptcy.

 

[WhenIsItTime]

Our current situation:

I make $135k/yr. Wife does not work.
We are 47 and 50. I hope to retire at 57!
Last year we really started focusing on retirement savings. We paid off 2 cars, 3 credit cards, and are currently debt free except for our home. We plan to save/invest at least $50k/yr

Current assets:
IRA totals: $410k
Roth IRA totals: $28k (will be capping each year)
Cash and taxable account $15k
Current NQDC balance $68K

The main reason I dislike the NQDC plan I am in is that is pays lump sum when I leave the company. For the first couple years with the company I was putting in 15%. But I soon realized that having a large lump sum payout was probably a bad idea. So this year I backed off my NQDC contribution to 6% just to get the match and will instead bump up contributions to my taxable account and some more into my money market savings account which gives 2%.

I'm concerned about having $300K+ in there when I retire and possibly getting bumped into a higher bracket which will result in the tax man getting a larger chunk.

On the flip side, I hate to not take advantage of pre-tax investing.

Would you keep it at 6% to get the maximum match or go up to 10-15%?

Thanks!

Some NQDC plans allow you to change the payout option as long as the change is deferring payment and not accelerating. See if you can have option to pay 1/5 per year for 5 years, etc.

 

[DrRoy]

Max the match, max the Roth.

 

[T-Minus]

My NQDC had three disbursement options that, once selected annually pre-contribution, were irrevocable and unchangeable. I selected the five-year annual payout. Other options available to me were immediate lump sum payout or a ten-year annual payout. What I didn’t know about when I signed up was the Obamacare subsidy (it didn’t yet exist). Thus, I am ineligible for any subsidy for the next five years, due to my annual NQDC payout. Oh well...

BTW - I put 10% salary into the plan while eligible, bumping my contributions up to 35% and 50% for my final two years (we had temporarily relocated to a high-tax state).