HelenaC
New Member

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

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