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I contribute 8%(pretax) of agi to employer's non-qualified plan.Exactly how are these funds treated upon distribution;I understand I can't roll them over, so I assume I'll have to pay tax at that time. Are there any protection standards for these funds or can company utilize them as they see fit? Potentially losing all I've put in?
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<<I contribute 8%(pretax) of agi to employer's non-qualified plan.Exactly how are these funds treated upon distribution;I understand I can't roll them over, so I assume I'll have to pay tax at that time. Are there any protection standards for these funds or can company utilize them as they see fit? Potentially losing all I've put in? >>The Non-Qualified Plan, or deferred compensation plan, allows you to give back to the employer 8% of your pay as deferred income. The money is invested per the plan document - they may give you 401(k) "like" funds as phantom investments. You can not have constructive receipt of these funds or a taxable event will be created without cash to pay the liability.

I assume your employer ask you in conjunction with the deferral election how long you would like to defer this income - 5 years - 30 years. When this time elapses you will then receive the income and earnings as ordinary income.

Keep in mind that if your employer goes bankrupt your salary deferral is subject to creditors because it is still part of the general assets of your employer. The employer can use a rabbi trust to help to prevent a change in management but not bankruptcy

Non-qualified plans are very good for employees who have a strong need to save amounts greater than the $10,500 401(k) limit. However, if you are concerned that your employer may file bankruptcy – you may want to rethink your deferral.

I hope this helps


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