Individual Plans

Qualified retirement plans vs. non-qualified plans. What's the difference? And which is right for you?

Qualified Plans

Qualified plans must meet rigid qualifications set by Congress for both employers and their employees. But, by doing so, they allow workers to have part of their income set aside each year, where it can grow – along with the earnings on these funds – on a tax-free basis until withdrawal time. Usually, that's no earlier than age 59 ½.

Creditors can't access these funds, which provides a layer of security for employees. And, some plans allow you to borrow from your funds without penalty – as long as you back the money back.

However, you can only contribute up to a specified amount each year to qualified plans. Additionally, you face other restrictions that vary by the type of plan.

Qualified plans fall into two basic categories. Defined benefit plans are funded entirely by the company, such as in a traditional pension plan. Meanwhile, defined contribution plans permit both the employer and worker to contribute. Common examples of defined contribution plans include:

  • Profit-sharing
  • 401(k)
  • 403 (b)
  • Section 457

Some companies match employee contributions on a dollar-to-dollar basis. For example, if you put in $5000, your employer will do the same.

Non-qualified Plans

It's easier and cheaper for companies to set up and implement these plans, as they don't have to follow most of the compliance rules for qualified plans.

Employees enjoy greater flexibility with these plans, and don't have to be concerned with annual contribution limits. Plus, employees still can defer their income on a tax-free basis until they withdraw the funds.

However, these plans don't provide as much protection from creditors as qualified plans, and carry some tax disadvantages.

What's Best for You?

That depends on a variety of factors – many of which are complex and difficult to understand – including what other sorts of plans you have. But, an experienced financial planner can clearly explain your options and help devise a plan that's right for your situation.

Let Emerging Insurance Brokerage Services design a retirement strategy that incorporates your individual plans.

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Noori Insurance Agency, Inc.
DBA: Emerging Insurance Brokerage Services


37371 Fremont Blvd Ste B.
Fremont CA 94536

tel 510-796-4929
fax 510-796-4928