Every fall, executives face two concurrent deadlines with long-term financial consequences: standard employer benefits enrollment and nonqualified deferred compensation (NQDC) plan elections.
Both election periods generally occur during the final months of the year, and the decisions can become difficult or impossible to change once the applicable deadlines pass. For high-income earners, choices made on these forms determine your taxable income, your retirement cash flow, and your exposure to corporate creditor risk for years to come.
With new rules taking effect this year, several common year-end assumptions no longer apply. Here is what to evaluate before you lock in your elections for 2027.
The Deferred Comp Election Is Close to Permanent
A nonqualified deferred compensation plan (often shortened to NQDC) lets you postpone receiving part of your salary or bonus until a later year, usually after you retire and your tax rate may be lower. The appeal is simple: compensation deferred under a compliant NQDC arrangement generally isn't subject to federal income tax until it's paid, although employment taxes may apply earlier.
The strict timing requirement is where many executives run into trouble. Under Section 409A, elections to defer compensation generally must be finalized before the beginning of the year in which the compensation is earned. Once the applicable election deadline passes, the election generally becomes irrevocable. (Performance-based bonuses may allow later elections under specific plan rules, but the December 31 deadline governs most base salary deferrals.)
That means you are locking in decisions today about compensation you haven't earned yet, with zero flexibility to adjust course if your cash flow needs change later in the year.
Choose the Payout Schedule With Your Retirement Year in Mind
Most plans give you several distribution options, including a lump sum at separation, annual installments over five to ten years, or payouts beginning on a specific future date.
While most executives focus primarily on how much salary to defer, how and when you receive those funds often has a much larger impact on your taxes. A lump sum arriving in one year can push a large amount of income into your highest bracket, sometimes in the same year you receive a final bonus or exercise options. Installments spread across several retirement years typically land in lower brackets.
Your distribution schedule also directly impacts your future healthcare costs. Deferred compensation payouts count toward modified adjusted gross income, which is the figure Medicare uses to decide whether you owe a premium surcharge. We walked through how that calculation works in an earlier piece on Medicare premiums. A large payout in your mid-60s can raise your Medicare premiums two years later.
Changing a distribution election after the fact is possible but awkward. The rules generally require that you make the change at least 12 months in advance and push the payment out at least five additional years beyond the original date. Waiting an extra five years for your money is a steep price to pay for an uncoordinated election made years prior.
Why Deferred Comp Carries Company Insolvency Risk
Money in your 401(k) is held in trust for you. However, money you defer into a nonqualified plan is not; it remains an asset of the company, and you hold a contractual promise to be paid as an unsecured general creditor.
Many participants treat this risk as a distant technicality. But it demands careful attention if you defer a substantial portion of your earnings each year, or if your company faces shifting market conditions.
For most participants, the practical answer is sizing contributions deliberately: deferring a targeted portion of your bonus or salary rather than tying a major share of your household net worth to a single employer’s balance sheet.
The Catch-Up Rule Changed This Year
One change took effect in January 2026 and surprised several high earners when they looked at their first paychecks of the year.
Beginning in 2026, employees age 50 or older whose prior-year FICA wages from the employer sponsoring their plan exceed $150,000 must generally make catch-up contributions on a Roth basis. The threshold is adjusted annually for inflation and may change in subsequent years. For 2027 elections, executives should review their 2026 FICA wages against the applicable 2027 threshold to determine whether their catch-up contributions must be made on a Roth basis.
The pre-tax catch-up that higher earners used for years is no longer available to this group. The IRS established the 2026 threshold in Notice 2025-67. This requirement applies only to catch-up contributions, not regular employee 401(k) contributions.
This change carries two immediate planning implications for high earners. If you were counting on the catch-up to reduce this year's taxable income, it no longer does. And if your employer's plan doesn't offer a Roth option at all, you may be unable to make catch-up contributions until the plan adds one. Confirm your plan's Roth availability with HR during open enrollment so you aren't caught off guard by a rejected contribution in January.
Work Through the Plan Limits Before Looking Elsewhere
For 2026, the elective deferral limit for 401(k), 403(b), and governmental 457(b) plans is $24,500. The catch-up for those 50 and over is generally $8,000. For ages 60 through 63, a higher catch-up of $11,250 applies if your plan has adopted it. The IRS publishes the following year's figures each fall.
One limit affects higher earners specifically. Only the first $360,000 of compensation counts for plan purposes in 2026. If your salary runs well above that, your employer match may stop earlier in the year than you expect, and front-loading your contributions can cost you match dollars in plans that don't offer a year-end true-up. Always confirm your company's matching formula in the plan documents rather than relying on standard assumptions.
If a high-deductible health plan is among your options, the corresponding health savings account is the only account offering a deduction going in, tax-free growth, and tax-free withdrawals for qualified medical expenses. Funded and left alone rather than spent each year, it works as a retirement account for health costs later. Contribution limits are set annually by the IRS.
The Elections That Tend to Run on Autopilot
Disability insurance benefits are generally taxable to the extent the premiums were paid by your employer without being included in your taxable income. When premiums are paid entirely with after-tax dollars, benefits are generally received tax-free. If premium costs are shared, only a portion of the benefits may be tax-free. For high earners, choosing to pay disability insurance premiums with after-tax dollars, when available, can help preserve a greater share of their disability benefits if they ever need to file a claim.
Group life coverage, flexible spending account elections, and supplemental coverage all reset annually as well. Because these choices seem routine, employees tend to let them roll over year after year without evaluating changes in their coverage needs.
Coordinating Year-End Deadlines Before December 31
Both election periods generally occur during the final months of the year. Once their respective deadlines pass, the decisions can be difficult or impossible to change without meeting specific requirements. While standard open enrollment usually wraps up by mid-November, NQDC windows generally close on December 31, and elections generally become binding after their respective deadlines, subject to plan rules and permitted exceptions.
Coordinating employer benefits with everything else you have is part of ongoing financial planning and wealth management at Fiduciary Wealth Management. As an independent, fee-only fiduciary firm, we don't earn commissions or sell products, so we have no stake in which election you choose. We look at how the pieces fit together and tell you what we see.
Would you like a second set of eyes on your elections before the deadline? We recommend a short call as an easy place to start.
Common Questions About Deferred Comp and Year-End Elections
When is the deadline to defer next year's compensation?
For most plans, the election must be made by December 31 of the year before the compensation is earned. Compensation that qualifies as performance-based can sometimes be elected up to six months before the end of the performance period. Your plan document governs, and plans vary.
Can I change my deferred comp election after December 31?
Not for the deferral amount itself. That election is irrevocable once the deadline passes. Changing the distribution schedule is possible within limits: the rules generally require the change be made at least 12 months in advance and that the payment be delayed at least five additional years beyond the original date.
Is deferred compensation protected the way a 401(k) is?
No. Assets in a qualified plan like a 401(k) are held in trust for you. Deferred compensation remains an asset of the employer, and you hold a contractual promise to be paid as a general unsecured creditor. This is why it’s a good idea to compare the amount you defer against everything else you hold, which is part of how we approach investment account coordination.
Why do my 401(k) catch-up contributions have to be Roth now?
A provision of the SECURE 2.0 Act took effect January 1, 2026. For 2026, employees age 50 or older whose 2025 FICA wages from the employer sponsoring their plan exceeded $150,000 generally must make catch-up contributions on a Roth basis. The threshold is adjusted annually for inflation, so employees making elections for 2027 should compare their 2026 FICA wages with the applicable 2027 threshold. The IRS established the 2026 threshold in Notice 2025-67.
What if my employer's plan doesn't offer a Roth option?
If you are subject to the Roth catch-up requirement and your plan has no Roth feature, you may be unable to make catch-up contributions at all until the plan is amended to add one. Ask your benefits contact during open enrollment.
What are the 2026 401(k) contribution limits?
The elective deferral limit is $24,500 for 401(k), 403(b), and governmental 457(b) plans. The catch-up for those 50 and over is generally $8,000. For ages 60 through 63, a higher catch-up of $11,250 applies if the plan has adopted it. Only the first $360,000 of compensation counts for plan purposes. Coordinating those contributions along with your other accounts is part of ongoing retirement planning.
Does deferred compensation affect my Medicare premiums?
It can. Payouts count toward modified adjusted gross income, which is the figure Medicare uses to determine whether you owe a premium surcharge. Because that calculation looks back two years, a large payout can raise your premiums two years after you receive it. This is one reason the payout schedule calls for as much attention as the deferral amount.
Year-end benefit elections and deferred compensation decisions can have lasting consequences for your taxes, retirement income, and overall financial security. Taking the time to coordinate these choices with your broader financial plan can help you avoid costly mistakes and make more informed decisions. Because tax laws are complex and individual circumstances vary, always consult with your tax professional to understand how these rules apply to your specific situation before making any elections.
About Roc
With over 20 years of experience in the financial planning industry, Rocklin Senavinin, CFP®, has dedicated his career to helping individuals live comfortably in retirement and enjoy the assets they have spent their career building. He is President & Founder of Fiduciary Wealth Management, a fee-only registered investment advisory firm in Little Rock, Arkansas. As a CERTIFIED FINANCIAL PLANNER® professional, he has advanced training in the holistic process of creating a personal financial plan that addresses a person’s comprehensive needs for the short and long term. To learn more, connect with Roc on LinkedIn or visit www.fidwm.com. If you have questions, feel free to schedule a phone call using this link.
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