Which of the following best describes a significant advantage of a nonqualified deferred compensation plan?

A nonqualified deferred compensation plan allows an employee to defer a portion of their compensation to a later date, typically until retirement or another agreed-upon time. Choosing to defer compensation can prove advantageous for tax planning, as the income that is deferred is not subject to tax at the time of deferral. Instead, employees are taxed on the income when they actually receive it, which may be at retirement when they could be in a lower tax bracket compared to their working years. This timing can provide significant tax savings and allow for potentially more strategic financial planning.

In contrast, immediate tax deductions for contributions, caps on compensation deferrals, and reduced administrative costs do not highlight the essential feature of deferred compensation plans. Nonqualified plans do not usually provide immediate tax deductions like retirement accounts might, nor do they have strict contribution limits. Additionally, while administrative costs can vary, the primary motive behind these plans is the tax advantage they provide through deferral rather than cost efficiencies.