myNQDC | Distributions

1. When do you decide on the distributions from a nonqualified deferred compensation plan?

12 months before the date you want to receive the money
At retirement, when you elect distribution years
At the time when you decide how much compensation to defer
The decision is never yours, as NQDC plans provide for mandatory distributions

2. Which of these is NOT allowed to be a distribution trigger in a nonqualified deferred compensation plan?

Job termination
July 1 of the distribution year that you elected at enrollment
A financial hardship
A date you choose as long as your company is notified three months in advance

3. What age must you be to receive distributions from your NQDC plan?

The minimum age for receiving Social Security
There is no required minimum age
At least 59½ years old
At least 50 years old, but only after 15 years of service to the company (otherwise 59½)

4. At distribution, do you receive your deferred amounts as a lump sum or by installments?

Always a lump sum
Always installments (an annual stream of payments)
This depends on what you can elect and the mandatory distribution rules in your plan
Half as a lump sum, and the rest paid over a period of 10 years.

5. When can you change the timing or form of a distribution from your NQDC plan?

NQDC plans do not permit changes to elected distributions
At any time during the calendar year before the date you elected for receiving the distribution
At least 12 months before the date you elected for receiving the distribution
At least one month before the date you elected for receiving the distribution

6. What are in-service distributions?

Distributions for executives who perform military service
Distributions received when you are still employed by the company
Distributions that are contingent upon meeting corporate performance goals
Distributions in exchange for cash compensation received for your services

7. Which of the following is not a permissible reason for accelerating a distribution?

To satisfy a domestic relations order in a divorce
To cover employment, state, local, or foreign taxes
To pay taxes owed because the plan does not comply with IRC Section 409A
To cover moving expenses when you're reassigned to a new location

8. Can you get a distribution in company stock?

This depends on the provisions of your plan
No, NQDC can be distributed only in cash
Yes, but you must elect this at the time of deferral
Only when all distributions from the NQDC plan must be in stock

9. Are distributions allowed for job loss and for financial hardship?

Only one or the other, but not both
Only when the plan specifies these as distribution triggers
Only if the plan requires these distributions to be made 30 days after the event occurs
Only if you elected these as special circumstances for a distribution

10. How are taxes usually collected when I receive my distributions?

The full amount of tax is due with your tax return
For former and current employees, taxes are withheld from the distributed amount
Taxes are withheld according to withholding elections you make at the time of deferral
Estimated tax payments only

11. How and when is distribution income reported for current or former employees?

On Form 1099-NQDC for the year of distribution
On Form 1099-MISC for the year of distribution
On Form W-8, with a special box for nonqualified plans, for the year of distribution
On Form W-2, with a special box for nonqualified plans, for the year of distribution

12. Can you roll distributions into an IRA or a new employer's NQDC plan?

This is not allowed for NQDC plans
Only if you elected this at the time of deferral
Only if the new employer has a nonqualified deferred compensation plan and allows rollovers
Only if you roll the distributions over within 60 days of starting with the new company

13. To avoid tax penalties under IRC Section 409A, must payment distributions occur at the exact date specified in your deferral election?

Yes, 409A penalties are triggered if the distribution occurs on any date other than that specified in your distribution election
Yes, unless your company uses a rabbi trust, in which case the payment can occur at any time during the calendar year of the distribution
No, but the payment must occur by (1) the end of the month of your designated payment date or (2) the 30th day of the sixth month after the end of that year
No, but the payment must occur by (1) the end of the calendar year of your designated payment date or (2) the 15th day of the third month after the end of that year

14. Can you receive a distribution in company stock?

Never
Only with formal written approval by the IRS and the company's board
Yes, if your plan allows this
Yes, but the tax rates are higher

15. When you receive distributions in company shares, do capital gains tax rates apply, or is the value of the deferred amount based on the company's stock price?

You receive ordinary income based on the value of the stock at the time of deferral
You receive ordinary income based on the value of the stock at the time of distribution
You receive capital gains based on the appreciation of the stock between deferral and distribution
If the distribution meets the Section 409A rules, you have capital gains based on the appreciation of the stock between deferral and distribution, but ordinary income if the distribution violates the 409A rules

Distributions Quiz