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Is single-sum death benefit from a nonqualified deferred comp plan ded

Guest Gibson

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In setting up a NQDC plan (employee will have a hypothetical account balance, which is credited with earnings at a specified rate each year; account balance paid in installments following retirement, with lump sum death benefit if death prior to retirement), our consultant is concerned that the payment of the death benefit in lump sum will not be deductible in full in the year paid. Any thoughts? Thanks.

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Guest EAKarno

The full amount is absolutely deductible in the year in which it is taxable -- in this case to the beneficiary in respect of the decedent participant. See Code Section 404(a)(5) in general.

Who is your consultant?!?!

The issue of a nonqualified deferred comp. plan death benefit is even addressed in the 404(a)(5) regs. which state that it is fully deductible when paid.

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