Chances are your employer provides varying benefit plan incentives designed to help you save for retirement. All employer retirement plans fit into two main categories: qualified retirement plans and non-qualified retirement plans. We plan with your retirement accounts in mind, but also want to ensure clients understand the differences.
It all goes back to the Employee Retirement Income Security Act (ERISA) of 1974. This act established minimum standards intended to protect employee investments in their employer’s retirement plans.
Qualified Retirement Plans
These plans qualify for additional tax benefits beyond those received through regular retirement plans, like IRAs. A qualified plan has one of two structures – defined-contribution or defined-benefit. Through a defined-contribution structure, employees select which investments they want to invest in, then the amount they have in their retirement account depends on this decision. Through a defined-benefit structure, there is a specific payout amount, and the investment risk is on the employer instead.
Non-Qualified Retirement Plans
Employers may offer executives and other select employees non-qualified retirement plans as part of their benefits package. These can be carefully designed to meet specific needs, whereas qualified plans cannot. Non-qualified plans use after-tax dollars for funding, rather than the pre-tax dollars that fund a qualified plan. These plans don’t receive the same tax advantages as qualified plans and are considered assets of the employer.
Qualified retirement plans are core to many Americans’ portfolios and are also usually the first place financial professionals look to maximize when they draft personalized plans. Non-qualified plans are less common and vary greatly depending on circumstances.
If there are any retirement plan opportunities we haven’t yet discussed together, please contact the office so we can review how they fit into your overall strategy.
This material was developed and prepared by a third party for use by your Registered Representative. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.