How are executive retirement arrangements taxed?

The correct choice highlights the taxation of executive retirement arrangements occurring when funds are constructively received. Constructive receipt is a tax concept that occurs when an individual has control over the funds, meaning the benefits are readily available to them even if they have not physically taken the funds. This principle ensures that the individual cannot defer taxation indefinitely simply because they choose not to withdraw the funds.

In executive retirement arrangements, such as nonqualified deferred compensation plans, the funds may be subject to taxation not only at the time of withdrawal but also when the employee has an opportunity to access those funds. This approach prevents tax avoidance strategies by ensuring that the employee cannot evade taxes by delaying their withdrawal.

Understanding constructive receipt is crucial as it directly impacts when the individual is liable for taxes, thereby influencing financial planning around retirement benefits.