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New Member
posted Jun 1, 2019 4:39:25 AM

Is a 401K considered a qualified retirement plan?

0 4 3291
1 Best answer
New Member
Jun 1, 2019 4:39:27 AM

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

4 Replies
New Member
Jun 1, 2019 4:39:27 AM

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

New Member
Dec 28, 2020 5:00:24 AM

If my company offers a 401K, but I didn't make any contributions, will I be able to deduct the full amount of contributions to a regular IRA?

Level 15
Dec 28, 2020 7:04:55 AM

maybe not  ...  read page 11 :  https://www.irs.gov/pub/irs-pdf/p590a.pdf   

Level 15
Dec 28, 2020 7:16:50 AM

Your employer will indicate whether or you you are an active participant in their workplace retirement plan for 2020 by either marking or not marking box 13 Retirement plan on your 2020 Form W-2.  This is what the IRS goes by.