Differences Between Qualified & Nonqualified Plans

If there is a wide pay gap between your upper management personnel and your rank and file employees, you may consider offering both a qualified retirement plan, such as a 401(k) o SIMPLE IRA, and a nonqualified plan. This way you can provide more tax-deferral and long-term savings flexibility to your highly compensated employees without being restricted by IRS limits.
Here are the main differences between qualified and nonqualified plans:
Plan Feature
Qualified Plan
Nonqualified Plan
Must be available equally to all employees as defined by the plan
Can be made available only to select employees
Compensation deferral limits
Yes; total dollar limits are adjusted each year by the IRS; pre-tax maximum for 2014 is $17,500
No IRS-defined limits
Distribution timing
Generally, cannot take distributions before age 59½ except for certain financial hardships
Several options available but once a distribution option is elected, it cannot be changed; Section 409A restrictions apply
Mandatory distributions
Yes; must take Required Minimum Distributions starting at age 70½
Not required by IRS but plan rules may apply
Assets protected from company creditors
Yes, if the plan allows
Participant and company tax deduction on deferrals
Yes, in the year of deferral
Yes, but not until distribution
Rollover to IRA upon job loss
Yes, under terms of the plan

Game Plan

For a more detailed look at the features, characteristics, and types of qualified and nonqualified plans, go here.
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