Updated July 29, 2026. Quick answer: The safe harbour has a hard edge. 4 U.S.C. §114(b)(1)(I)(i)(II) requires payments over “a period of not less than 10 years.” Nine years earns no partial protection — the income simply falls outside the definition and the former state may tax all of it. Five years and one year are in exactly the same position.
The cliff
| Payout period | Protected by §114? |
|---|---|
| 1 year (lump sum) | No |
| 5 years | No |
| 9 years | No |
| 10 years | Yes |
| 15 years | Yes |
Nine and ten are the same amount of money spread over almost the same period, with completely different state-tax outcomes. There is no proration, no partial credit, and nothing in the statute that softens the boundary. Five-year payouts are extremely common in nonqualified plans, which means a very large number of people are on the wrong side of a line one year away.
What the payments themselves have to look like
Not just long enough — substantially equal, and made not less frequently than annually. The statute does allow adjustments to cap total disbursements under a predetermined formula, or for cost-of-living increases, without failing the test. Beyond that, an irregular schedule is a risk even if it runs past ten years.
If you are choosing a schedule now and there is any chance you will move to a lower-tax state before it pays out, ten years is not a preference — it is the difference between protected and exposed. And it is far easier to elect at deferral than to change later.
Sources
4 U.S.C. §114(a) and §114(b)(1), including subparagraph (I) and its clauses (i) and (ii); IRC §3121(v)(2)(C); IRC §409A(a)(2)(A) and (a)(4)(C); IRC §415 and §401(a)(17). All read July 2026.
This states what the cited authority says. It is not tax advice, and retirement-plan design turns on facts about your business and your other entities that no page can see. Every dollar limit referenced here is indexed and changes annually.