Part of: Equity Compensation for Executives
Deferred Compensation Elections: Timing Considerations
Nonqualified deferred compensation plans allow some executives to defer a portion of income to a future date, which can offer tax-timing flexibility but also comes with its own rules, elections, and risks.
How deferral elections generally work
These plans typically require elections about how much to defer and when the deferred amount will be paid out, often made in advance and subject to specific timing rules. [ENTITY DISCLOSURE REQUIRED — this is not tax or legal advice; specific plan rules and election deadlines should be confirmed with your employer's plan documents and a tax professional.]
Considerations before electing to defer
Unlike qualified retirement plans, deferred compensation is generally an unsecured promise from the employer — meaning it may carry credit risk tied to the company's financial health. Deferral elections are also typically difficult to change once made, so timing and payout-date decisions deserve careful thought relative to your broader cash-flow needs and tax situation.
Key takeaways
- Deferred compensation can offer tax-timing flexibility but is typically an unsecured company obligation.
- Elections are generally made in advance and are difficult to change once made.
- Payout timing should be considered alongside your broader cash-flow and tax picture.
More in this series
- Equity Compensation for Executives: Understanding Your Options
- RSUs vs. Stock Options: Key Differences