What is a Non-Qualified Plan?
How Does a Non-Qualified Plan Work?
A non-qualified retirement plan is essentially whatever a qualified plan is not. In other words, if the plan does not meet the myriad of exact requirements the Internal Employee Retirement Income Security Act of 1974 (ERISA), the retirement plan is non-qualified.
But in general, the deems defined-benefit plans and defined-contribution plans as qualified retirement plans (though hybrid plans, which combine elements of the two, are also acceptable in some cases). Defined-benefit plans are usually traditional pension plans; defined-contribution plans are often 401(k) plans, 403(b) plans, money-purchase pension plans, or profit-sharing plans. Non-qualified plans might involve trusts, life insurance policies, or deferred compensation plans, and the assets in these plans might be mixed with the assets of the employer (qualified plans don’t allow that).
This means that if a plan is non-qualified, employers generally cannot deduct contributions they make to the plans on behalf of their participants, and plan participants cannot exclude their contributions from their taxable income. Additionally, the on the retirement plan are usually taxable.
Why Does a Non-Qualified Plan Matter?
Knowing whether a retirement plan is a saving for their retirement by other means. Given that , tax , and tax deferrals can create significant differences in retirement income when compounded over several years or even decades, finding a qualified retirement plan is one of the most important things an investor can do to ensure adequate income after he or she stops working. Of course, qualified retirement plans do have their limitations, namely that the are often unavailable to the investor until he or she retires and sometimes are limited in terms of allowed . In those cases, a non-qualified plan might fit the bill.is important, because having one entitles the participant to certain tax advantages that are not available to people