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Section 409A Definition

January 26, 2015

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Short Definition
Section 409A explains regulations related to non-qualified deferred compensation plans. This section was added to the Internal Revenue Service (IRS) Code in an effort to decrease the possibility of fraudulent activity as taxpayers move income from one tax year into another.

Expanded Definition
The Internal Revenue Code consists of several sections which provide regulations for taxpayers to follow. Section 409A of this code refers to non-qualified deferred compensation (NQDC) plans. Earnings that are generated in one taxable period, but not paid until another period are considered deferred. Non-qualified deferrals are not subject to the same regulations as qualified deferrals. Section 409A was enacted to set clear boundaries and establish rules for funding and distributing NQDC plans.

Related Article
Section 409A: Requirements for NQDC Plans

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