Generally speaking it's not recommended, or differently put: the closer to the CPU the better. Both S25LP064A and LPC546xx however support XIP, so it is viable.
This is not a trivial issue as many aspects are affecting. I.e. issue is best avoided and should really have been ironed out in the planning stage. Embedded Systems are more about compromising than anything and making the right/better choices takes skill end experience.
- Same question with replies on the NXP forum: link
512K of NVRAM is huge. There are almost certainly room for optimisations even if 3'rd party libraries are used.
On a related note this discussion concerning XIP should give valuable insight: link.
I would strongly encourage use of file-systems if not done already, for which external storage is much better suited. The further from the computational unit, the more relevant. That's not XIP and the penalty is copy-to-RAM either way you do it. I.e. performance will be slower. But in my experience, the need for speed has often-times not been thoroughly considered and at least partially greatly overestimated.
Regarding your mentioning of RTOS and FW-upgrade:
Unless it's a poor RTOS there's file-system awareness built in. Especially for FW upgrading (Note: you'll need room for 3 images, factory reset included), unless already supported by the SoC-vendor by some other means (OTA), it will make life much easier and less risky. If there's no FS-awareness, it can be added.
FW upgrade requires a lot of extra storage. More if simpler. Simpler is however also safer which especially for FW upgrades matters hugely. In the simplest case (binary flat image), you'll need at least twice the amount of memory you're already consuming.
All-in-all: I think the direction you're going is viable and depending on the actual situation perhaps your only choice.