Non-qualified retirement plan

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A Non-qualified retirement plan is a plan that does not meet the requirements of Internal Revenue Code Section 401(a) and the Employee Retirement Income Security Act of 1974 (ERISA) and therefore does not qualify for favorable tax treatment.

In essence, a non-qualified retirement plan is a contract to provide pension benefits. Individuals can create one, but most are created by employers.

Contributors to non-qualified plans don't get the same tax benefits as contributors to qualified plans, such as 401(k)s, do. However, non-qualified plans can be much more flexible in setting benefit amounts and timing payouts.

The contributions made to these plans are usually nondeductible to the employer and are usually taxable to the employee. However, they allow employees to defer taxes until retirement. Non-qualified plans are often used to attract and retain highly paid employees.

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