Say part of a person’s total compensation package from work comes in the form of Non-Qualified-Employee-Stock-Options and another part of that person’s compensation comes in the form of Restricted Stock Units. Both of those programs have multi-year vesting schedules, and thus it takes awhile before that at-risk compensation is potentially available to the employee.
In both those forms of payment, when the stock-based compensation gets exercised and converted to cash, it gets processed through payroll, and the employee pays Social Security and Medicare taxes on it, on top of income tax withholding.
If that employee retires and is able to keep the not-yet-vested or expired NQESOs and RSUs, does exercising them post-retirement count as taxable compensation for the purpose of contributing to an IRA?
That’s a really good question! Thanks for posting it.
I have a similar situation. I retired last year, but I received some deferred compensation this year (and will again next year) from a non-qualified deferred compensation plan. Am I eligible to make IRA contributions from that non-qualified deferred compensation?
Sorry, but the answer is no. NQESOs and RSUs are considered to be deferred compensation - you were originally compensated in the year that the grant was awarded, but you don’t actually receive the benefit until it vests - which is the very definition of compensation being deferred. Deferred compensation is not eligible compensation for making IRA contributions. See that deferred compensation is specifically not included as IRA eligible in this table from IRS Pub 590-A 2022 Publication 590-A (irs.gov)
