Two major types of retirement plans are permitted under US tax law - Qualified Plans and Non-Qualified plans.

Qualified Plans are tax-qualified under the Internal Revenue Code.   If certain conditions are met, these plans allow for tax-deductible contributions by both employers and employees, and tax-deferred investment during accumulation.   This is a highly powered way to save for retirement.   For this reason, most retirement plans in the US are Qualified Plans.   Qualified Plans are subject to many rules and restrictions under US benefit law (ERISA).

Non-Qualified Plans are NOT tax-qualified under the Internal Revenue Code.   Employer and employee contributions are usually not tax-deductible when made, but can be if a substantial risk of forfeiture exists.   Non-qualified plans may not be funded at all, with benefits paid out only upon termination of employment.   But Non-Qualified Plans are not subject to the many restrictions under ERISA, and may be a better fit under some circumstances.


The choice as to whether you want to operate a Qualified Plan or a Non-Qualified Plan is significant.   If you have any more questions please contact us at ALI Actuarial & Retirement Plan Services.