BENEFITS

Growing BusinessBENEFITS

  • Back to quick summary
  • Nonqualified Deferred Compensation Plans for Key Personnel

    Game Plan

    In-Depth

    Differences Between Qualified & Nonqualified Plans

    If there is a wide pay gap between your upper management personnel and your rank and file employees, you may consider offering both a qualified retirement plan, such as a 401(k) or SIMPLE IRA, and a nonqualified plan. This way you can provide more tax-deferral and long-term savings flexibility to your highly compensated employees without being restricted by IRS limits.

    Here are the main differences between qualified and nonqualified plans:

    Plan Feature

    Qualified Plan

    Nonqualified Plan

    Eligibility

    Must be available equally to all employees as defined by the plan

    Can be made available only to select employees

    Compensation deferral limits

    Yes; total dollar limits are adjusted each year by the IRS; pre-tax maximum for 2014 is $17,500

    No IRS-defined limits

    Distribution timing

    Generally, cannot take distributions before age 59½ except for certain financial hardships

    Several options available but once a distribution option is elected, it cannot be changed; Section 409A restrictions apply

    Mandatory distributions

    Yes; must take Required Minimum Distributions starting at age 70½

    Not required by IRS but plan rules may apply

    Assets protected from company creditors

    Yes

    No

    Loans

    Yes, if the plan allows

    No

    Participant and company tax deduction on deferrals

    Yes, in the year of deferral

    Yes, but not until distribution

    Rollover to IRA upon job loss

    Yes, under terms of the plan

    No

     

    Game PlanGame Plan

    Game Plan

    For a more detailed look at the features, characteristics and types of qualified and nonqualified plans, go here.