Clay Erickson, an award-winning financial services professional, works for the Wealth Innovation Group in Centerville, Utah. To this role, Clay Erickson brings more than 35 years of experience and a strong understanding of Utah’s retirement and financial planning tools, including qualified and nonqualified retirement plans.
The primary difference between qualified and nonqualified plans is the way each plan is taxed. Since qualified plans, such as IRAs and 401(k) plans, are designed to meet the Employee Retirement Income Security Act (ERISA) guidelines, they grant both employers and employees tax breaks for contributions.
For employers, all contributions made on behalf of employees are deductible from that year’s taxes. Employees are not taxed on the funds in their qualified plans until those funds are withdrawn.
However, contributions to a qualified plan are limited every year by the IRS. When contributions surpass these limitations, they are usually not deductible.
Nonqualified plans are not subject to limitations on their contributions. However, employees often must pay taxes on any income contributed to their nonqualified plan when they earn it, and employers cannot deduct contributions made to these plans.
