Nonqualified deffered compensation (NQDC)

[triad]

I read part of a WCI I post about these and was curious if it could ever make sense for a single owner office.   I understand that you can defer an unlimited amount so that seems like a great bonus.  Would it make sense to have one of these plans, defer a ton of money, then pay that out before I sell the office or pay out slowly if I drop down to part time or find a partner?

[jfoxcpacfp]

These do not work for single-owner offices.

[litovskyassetmanagement]

triad wrote:

I read part of a WCI I post about these and was curious if it could ever make sense for a single owner office.   I understand that you can defer an unlimited amount so that seems like a great bonus.  Would it make sense to have one of these plans, defer a ton of money, then pay that out before I sell the office or pay out slowly if I drop down to part time or find a partner?

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Technically you can have any plan you'd like, but in practice this won't be a good idea of a number of reasons, many of which are listed here:

https://www.sentinelgroup.com/SentinelBenefits/media/Sentinel-Benefits/2014-site/Documents/For%20Companies/Nonqualified-Deferred-Compensation-Plans-Sentinel-Benefits.pdf

At the very least you need a C corp to make these work.  All of the money would be subject to claims from creditors (bummer). These are so complex that the cost of setting and administering one of these would be prohibitive for a solo owner, and you'll need to hire someone who knows how to run these as well as to assist you with the actual planning, which is not simple since you have to make future projections and calculation regarding future distributions. Since you are only deferring compensation, eventually your tax bill might be higher than what you've saved by deferring salary, depending on how the distributions are done, which is what I've found while working with non-governmental 457 plans.

These are secondary to qualified plans precisely because qualified plans are much easier to use and plan with, and for most practices the benefit of tax deduction (and subsequent Roth conversion) would be more valuable, especially for those in the higher tax brackets.