NQP - Executive Comp. Plan

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What's the best way to model a NQP? The NQP has a defined withdrawal period and is 'invested' in accounts that mirror mutual funds, so remaining balance will change over time. e.g. total balance withdrawn over a 10 year period starting 1 year after retirement. First year payment is starting balance at beginning of year / 10, second year payment is starting balance at beginning of year / 9, etc. Thanks.

Comments

You could set this up as a pension or through taxable special receipts with some side calculations.

Best,
Brian

Dan Royer's picture

Yes, maybe because the pension assumes it doesn't zero out at the end, you could just do some side calculations and enter as tax-appropriate nominal dollars in special receipts.

Dan & Brian, I appreciate the ideas... I've been playing around with ESPlanner more today and would like your opinion on using special withdrawals instead of special receipts. Can you explain more as to why you recommend using 'special receipts' over 'special withdrawals'? Thanks.

Dan Royer's picture

Special withdrawals come from your qualified retirement accounts. Normally you set "smooth" withdrawals from these accounts in the key ages tab--the date to begin and end those withdrawals. Typically you'd see, say, start at 65 and end at 100. But some might squeeze them into a 7 year period or 15 year period.

The "special withdrawals" are a way to override those otherwise smooth withdrawals. So the smooth might be 25K every year from 65-100. But we might take out 35K "special" from 65-75 and then let smooth take over after that with what remains.

I don't know much about a NQP but if it's non-qualified, then it's not in that pool for smooth/special withdrawals. It's in either pension--or simply set up as a series of special receipts that you calculate on the side. So if the pension plan or your own calculation said: you get 50K in nominal dollars (not inflation adjusted) for the next 10 years and then nothing. That's pretty easy to give yourself as a a series of special receipts where you can indicate the proper tax consequences of those receipts.

Dan, I understand it now, thank you.

Can someone clarifies this withdrawal scenario what is happening to the balance of the investments in the exec comp plan besides the prescribed inflation factor? does it continue to appreciate based on what you enter as assumed growth? would it automatically calculate tax impact on total withdrawals that year?

It's easiest to consider "special" receipts or expenditures as the result of user side calculations. Since that's the case, ESPlanner doesn't know what's going on in those side calculations.

In this case, if I understand it correctly, the original poster was not going to include the NQP as an asset. Instead, they would use a series of ten special receipts that form an income stream during those years. This would mean the user would be responsible for any side calculations including real growth of the NQP assets.

For the yearly special receipts, ESPlanner would calculate the taxes based on the user selected tax treatment (not taxable, at ordinary rates, at capital gains rates).

Best,
Brian