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Retirement tax questions
Yes, a 401(k) plan is a qualified retirement plan.
Qualified money is "before tax" money. Non-qualified money is "after tax" money.
Qualified plans are designed to offer individuals added tax benefits on top of their regular retirement plans, such as IRA s:
Employers deduct an allowable portion of pretax wages from the employees, and the contributions and the earnings then grow tax-deferred until withdrawal.
- You did not pay taxes on this money when you invested it.
- While invested, this money will grow tax-deferred.
- No taxes will be owed on gains within the account each year and therefore you will not get a 1099 form each year.
- Qualified plans receive this special tax treatment because they were designed with retirement in mind.
- Examples: 401(k) plans, 403(b) plans, SARSEP plans, SEP-IRA plans, and SIMPLE IRA plans.
Non-qualified plans are those that are not eligible for tax-deferral benefits.:
- Deducted contributions for non-qualified plans are taxed when income is recognized.
- This generally refers to when employees must pay income taxes on benefits associated with their employment.
- When you invest outside of a “Qualified” plan, you do not get to write off this investment on your taxes.
- Put simply, money invested into Non Qualified plans will not get an upfront tax break.
- Additionally, the investment earnings could be taxable each year. It all depends on the type of investment you use.
Related information:
IRS Guide to Common Qualified Plan Requirements
IRS Nonqualified Deferred Compensation Audit Techniques Guide
June 1, 2019
4:39 AM