NQDC education videos

Explore these short videos that can quickly get you up to speed on all things deferred comp—including NQDC basics, how it could help you manage your taxes, what to expect when you enroll in a plan, and more.

How an NQDC plan can work for you

We all have different needs and unique expectations for retirement. Traditional retirement savings accounts work well for many people, but the contribution limit can create a savings gap, depending on your retirement needs.

A deferred comp plan can help you solve for that by bridging the gap between the income earned while you’re working and other retirement income that’s still growing or isn’t available yet, like Social Security.

With a nonqualified deferred comp plan, you can:

• Potentially grow your savings.
  Pre-tax deferrals result in tax-deferred growth, allowing compounded earnings to help you save more.

• Manage your taxes.
  Deferring a portion of your compensation reduces your taxable income. And you’ll have more control over how and when you pay taxes on what you saved.

• Supplement and diversify your retirement savings.
  Deferred comp plans allow you to save more than the contribution limits of qualified plans, such as a 401(k).

Is a NQDC plan the right fit?

A deferred comp plan is a long-term financial tool you can use as one element of your retirement strategy. If you’re interested in saving more, managing your tax bill, or retiring early, this plan could be for you.

Before participating in the deferred comp plan, you may want to make sure you're making the most your organization's 401(k) plan. Once you've contributed all you can to the 401(k) plan, participating in a deferred comp plan may make sense as a way to continue to supplement your retirement income. 457(b) plans have a special catch-up provision, allowing you to potentially make additional catch-up contributions during the three years prior to the plan’s normal retirement age. Unlike qualified plans and governmental 457(b) plans, it isn't based on the age 50 catch-up or a present amount.

Check out this FAQ for common questions participants ask prior to deciding to enroll.

What are the tax implications?

Knowing the impact of taxes can help you determine how much of your income to defer. With an NQDC plan, you’re setting aside money before taxes come out (pre-tax), and the earnings on those dollars compound on a tax-deferred basis. That means more of your money is working for you.

This advantage can significantly increase the longer you let your balance grow. Also, by strategically timing when you pay taxes, you may find you’re able to lower your tax bracket in your retirement years. Keep in mind that distributions from a nonqualified deferred comp plan are treated as ordinary income, and subject to current federal and state income tax.

Maximize your plan

Plan to reach your retirement goals.

For employees like you, it may be a challenge to meet your retirement goals by solely relying on Social Security and 401(k) plans. Participating in your employer’s deferred comp plan can help you supplement your retirement income.

These tools and resources can help you make decisions to get the most out of your plan:

• Use the nonqualified deferred compensation planner to estimate the deferral percentage that can best help you meet your income goals.

• Get one executive’s perspective on how he used his nonqualified deferred comp plan to achieve his retirement goals (PDF).

You may want to consider investing the money you defer.

Through the deferred compensation plan, you can direct deferrals to a variety of reference investment options. Each investment option offers a different level of risk and potential return. That means you can make choices that complement your overall financial strategy.

Take a quiz (PDF) to assess your comfort level with investment risk.

Help protect your loved ones.

When you enroll in your organization’s nonqualified deferred compensation plan, you’ll designate one or more beneficiaries. They’ll receive the money from the plan. Who you select is legally binding and overrides your will, so it’s important to keep your beneficiaries updated so the money in your account will be distributed the way you want.

You can review or change your beneficiaries anytime by logging in to your nonqualified account on principal.com.

Anticipating a distribution

What events trigger a distribution?

During enrollment, you’ll designate how you want to receive your money from the deferred comp plan. You’ll want to ask yourself:

Distributions can be triggered by events that are:

• Within your control, like leaving an employer for a new job or due to retirement.

• Out of your control, such as a death, disability, change in the company’s control, or financial hardship.

What happens if you leave your employer?

Generally, you will receive your distribution(s) within 60 days after leaving your employer. If you would like to defer your distribution to a later date, and your plan allows it, you will need to provide written notice to your employer.

If you leave to work for another not-for-profit entity that offers a non-governmental NQ 457(b) plan that accepts transfers you could transfer your balance to the new employer’s 457(b) plan.

FAQs: Unplanned early distributions

Have questions about unplanned early distributions from the nonqualified deferred comp plan? Check out the answers to these frequently asked questions.