Non-Qualified Deferred Compensation - NQDC

DEFINITION of 'Non-Qualified Deferred Compensation - NQDC'

Compensation that has been earned by an employee, but not yet received from the 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.

BREAKING DOWN 'Non-Qualified Deferred Compensation - NQDC'

NQDCs emerged because of the cap on contributions to government-sponsored retirement savings plans. High-income earners are unable to contribute the same proportional amounts to their tax-deferred retirement savings as average or low-income earners. NQDCs, therefore, are 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 more on NQDC, read How Non-Qualified Deferred Compensation Plans Work.)