What Are the Benefits of Non-Qualified Retirement Plans?
Qualified retirement plans are those that receive special tax privileges from the IRS. These plans include IRAs and 401k plans. Non-qualified plans also provide significant advantages to individuals and businesses. These advantages allow non-qualified plans to provide benefits that qualified plans cannot duplicate.
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Unlimited Contribution Amounts
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Non-qualified plans do not have contribution limits. This means an unlimited amount of money may be contributed to these plans for future retirement planning. In most instances, the money in the plan is tax deferred, so no taxes are paid on the investment earnings inside the plan.
Non-Interference With Qualified Plans
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Non-qualified plans may operate alongside qualified plans. This means that a non-qualified retirement account, like an annuity, may be funded in addition to a qualified retirement plan. An individual or business does not lose the benefits derived from either type of retirement account.
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More Control
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Businesses may discriminate when using a non-qualified retirement plan. This means that they do not have to offer a non-qualified retirement plan to all employees. They may choose which individuals receive the plan and which ones do not. There are no non-discrimination rules as there are with qualified plans.
Future Tax Deductions
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Businesses receive future tax deductions in exchange for having to pay taxes on any contributions made to non-qualified plans today. This means that when benefits are paid, the company may deduct all benefit payments and thus reduce the income of the business in the future. If the plan performed well, and there are sizable benefits being paid, the business may dramatically reduce their future taxes.
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