what are 409a plans 
409a plans are a type of non qualified deferred compensation plan for compensation that has been earned by an employee but not yet received from their employer because the ownership of the compensation which may be monetary or otherwise has not been transferred to the employee it is not yet part of the employee s earned income and is not counted as taxable income 1the internal revenue service code 409a governs for profit nqdcs such as plans for employees working for a large corporation other plans for employees of non profits or government entities are included under irs sections 457 b or 457 f 23understanding 409a plansnqdcs as 409a plans reference the section of the tax code they exist in they were created in response to the cap on employee contributions to government sponsored retirement savings plans 4 because high income earners were unable to contribute the same proportional amounts to their tax deferred retirement savings as other earners nqdcs offer a way for high income earners to defer the actual ownership of income and avoid income taxes on their earnings while enjoying tax deferred investment growth for example if sarah an executive earned 750 000 per year her maximum 401 k contribution of 22 500 for tax year 2023 would represent only 3 of her annual earnings making it challenging to save enough in her retirement account to replace her salary in retirement 5by deferring some of her earnings to an nqdc she could postpone paying income taxes on her earnings enabling her to save a higher percentage of her income than is allowable under her 401 k plan savings in an nqdc are often deferred for five or 10 years or until the employee retires an nqdc plan sponsored by for profit plan sponsors is governed by internal revenue code irc section 409a while one sponsored by a nonprofit or governmental plan sponsor is governed under irc section 457 b or 457 f 24nqdcs don t have the same restrictions as retirement plans an employee could use their deferred income for other savings goals like travel or education expenses investment vehicles for nqdc contributions vary by employer and may be similar to the 401 k investment options offered by a company limitations of nqdcsnqdcs can be a valuable savings vehicle for highly compensated workers who ve exhausted their other savings options but they re not risk free they re not protected by the employee retirement income security act erisa like 401 k s and 403 b s are if the company holding an employee s nqdc declared bankruptcy or was sued the employee s assets would not be protected from the company s creditors additionally the money from nqdcs cannot be rolled over into an ira or other retirement accounts after they re paid out another consideration is that if tax rates are higher when the employee accesses their nqdc than they were when the employee earned the income the employee s tax burden could increase 