Series 24: Non-qualified Plans

Non-qualified Plans

Non-tax-qualified plans do not meet ERISA requirements. Non-qualified plans are often used to give special retirement benefits to key employees. The contributions to non-qualified plans are usually made with after-tax dollars, and because taxes have already been paid on these contributions, any withdrawals of contributions are not taxed. When earnings are withdrawn, however, they are taxed at the participant’s ordinary income level. Non-qualified plans do not allow employers to deduct their contributions from their income.

Employers often choose non-qualified plans because they do not have to make them available to every employee, so they offer more flexibility than qualified plans. Other advantages to non-qualified plans are that they are easy to set up, req