Whats the difference between a QUALIFIED and a NON-QUALIFIED retirement plan?
Qualified retirement plans make up most of the plans in the US. QUALIFIED means that the plan adheres to IRS laws and regulations concerning coverage of employees, reporting to participants and to the government, and benefit limits. If a plan is filed with IRS for approval, it is said to be a qualified plan. The qualified status has several advantages: • The contributions made by the employer to the plan are tax-deductible to the employer. • The investment income generated within the plan is not currently taxed to the employer or to the plan participants. • The benefits, when paid out to the participants, are not subject to FICA or other payroll-based taxes. • The plan assets are safe from the employer’s creditors. In a NON-QUALIFIED plan, these advantages are not always available. However, sometimes the disadvantage of not being “qualified” by IRS can be outweighed by other issues. If the taxation issues are minor or not applicable (such as with non-profit companies), then not having
