I've been offered the opportunity to defer some or all of my annual bonus to a non-qualified exec retirement plan. The plan provides for 'notional investments' in Fidelity funds where you have the ability to decide how it is invested. There is a S&P500 index fund with 10 bp fund ratio available which is appealing. Everything else is at least 60 bp. Being a non-qualified plan, you are a general creditor of the company which is a large, very solid megacorp.
I would be looking a putting about $100K in the deferral each year for the (hopefully) three years I have remaining before ER. If I take the bonus normally, I'd be paying 35% federal and 5% state each winter when the bonus is paid. If I defer receipt until after retirement I'd likely be at a blend of 15% and 25% on the payouts. For easy math, I split the difference. As we likely will move to a no income tax state at ER, that tax goes away too (I confirmed this) It looks to me like a $20K tax savings. The flip side is that if I take the bonus each year while working and pay the taxes as I go, after retirement I would be able to keep my O-MAGI below $62K and qualify for Obamacare rates which would save about $6000. If I'm thinking correctly, my net savings is $14,000 in less taxes for each year's bonus.
The plan requires you to select a distribution option with the best choice being a combo of the earlier of separation (paid the following January) or a designated date certain at least three years out. There are not great provisions for changing your mind once you make the election.
I have sufficient after-tax assets for the first part year of retirement if I make the deferral, so no issue there. My plan is to live off after tax assets from 56-65, qualify for Obamacare below the cliff and make Roth conversions if possible. If I go with the deferral, this plan would need to change for a few years while I would receive the payouts. Once Medicare is available I'd convert IRA's to Roth like a madman until age 70 RMD's. I plan to wait for SS until age 70. DW has been a SAHM for many years.
I am inclined to make the deferral recognizing I'm taking on some creditor risk and a loss of flexibility. Am I missing anything here?
Discovered the thread from last month that covers many of the same issues but wondering if perhaps there are more thoughts / guidance to share.
Thanks
I would be looking a putting about $100K in the deferral each year for the (hopefully) three years I have remaining before ER. If I take the bonus normally, I'd be paying 35% federal and 5% state each winter when the bonus is paid. If I defer receipt until after retirement I'd likely be at a blend of 15% and 25% on the payouts. For easy math, I split the difference. As we likely will move to a no income tax state at ER, that tax goes away too (I confirmed this) It looks to me like a $20K tax savings. The flip side is that if I take the bonus each year while working and pay the taxes as I go, after retirement I would be able to keep my O-MAGI below $62K and qualify for Obamacare rates which would save about $6000. If I'm thinking correctly, my net savings is $14,000 in less taxes for each year's bonus.
The plan requires you to select a distribution option with the best choice being a combo of the earlier of separation (paid the following January) or a designated date certain at least three years out. There are not great provisions for changing your mind once you make the election.
I have sufficient after-tax assets for the first part year of retirement if I make the deferral, so no issue there. My plan is to live off after tax assets from 56-65, qualify for Obamacare below the cliff and make Roth conversions if possible. If I go with the deferral, this plan would need to change for a few years while I would receive the payouts. Once Medicare is available I'd convert IRA's to Roth like a madman until age 70 RMD's. I plan to wait for SS until age 70. DW has been a SAHM for many years.
I am inclined to make the deferral recognizing I'm taking on some creditor risk and a loss of flexibility. Am I missing anything here?
Discovered the thread from last month that covers many of the same issues but wondering if perhaps there are more thoughts / guidance to share.
Thanks
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