What is a qualified retirement plan?

Written by V. Raymond Ferrara, CFP®

On January 25, 2021

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In 1974, the United States enacted the Employee Retirement Income Security Act (ERISA) to protect workers’ retirement income and offer more information and transparency with how their plans work. Two types of retirement plan categories emerged as a result: qualified retirement plans and nonqualified retirement plans.

What is a qualified retirement plan?

A qualified retirement plan is one that meets ERISA guidelines. It qualifies for further tax and financial benefits than those received by traditional retirement plans. 

With some qualified plans, employers may deduct an agreed-upon portion of pretax dollars from an employee’s wages to invest in the plan. These contributions and the wealth they generate grow tax deferred until making withdrawals in retirement. Additionally, the employer is able to claim any contributions they make to the employee’s account as tax deductible. Further, these assets are protected from the claims of creditors.

What is a nonqualified retirement plan?

Simply put, a nonqualified plan is one that fails to meet ERISA guidelines. Many of these plans use post-tax dollars to fund them, meaning employers are usually unable to claim their contributions as tax deductions. 

Usually, companies reserve nonqualified plans for executives and other select employees. The plan can be designed to meet their specific needs, while a qualified plan tends to be more broad and accessible for the needs of all employees in a company.

Talk to a ProVise CFP® professional about your retirement strategy

You need to be saving as soon as possible for your retirement, so you can grow your wealth and obtain a comfortable retirement nest egg. However, the strategy for how to do this can seem complex and daunting as the financial landscape and rules and regulations continue to change. Fortunately, you can work with a financial advisor to help navigate the challenges and create a strategy that works for you.

At ProVise Management Group, our CERTIFIED FINANCIAL PLANNER™ professionals can get to know you and your current financial circumstances, goals, risk tolerance and personal values to help you develop a plan that works for you. We can also create a written plan for you at a fiduciary standard of care. All our written plans come with an unconditional money-back guarantee. If you are unhappy with your written plan, you can return it to us, and we will refund 100% of the fee paid.

Are you ready to talk to a professional about your retirement strategy? Contact ProVise today to schedule a complimentary consultation.

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