While asking yourself these questions, it is important to consider the impact of deferring. For example, it is usually best to defer for at least seven years to take full advantage of tax-deferred growth. While there are no federal limits to contributions to NQDC plans generally, a company's particular plan may impose certain limits on the amount you can defer, either each year or as an aggregate over multiple years.
Typically, the human resources department will notify you prior to the election. It is important to review the risks and rewards, including the investment alternatives and whether the election is irrevocable under the terms of the plan. In completing the forms, you will decide how much to defer, for how long and ultimately how to take the distribution — that is, a lump sum or as annual installments. You can select a specific year or an event, such as retirement or separation from service, to start the distribution.
Now is the time to decide if a NQDC is right for you. If your company does not offer these plans, now might be the time to discuss the idea to get ahead of next year.
— By Robert K. Barbetti, head of executive compensation advisory at JP Morgan Private Bank