How to Insure Your Income: Qualified or Non-Qualified

Deferred compensation plans may be classified as qualified or non-qualified. Most often, these plans will be non-qualified. As a non-qualified plan:

• the employer is free to discriminate as to which employees will participate;
• the plan need not be filed with the IRS;
• any investment income on contributions made to the plan is not tax-deferred (for the employer);
• the employer does not enjoy a current tax deduction on contributions; and
• the plan must be in writing and communicated to the employee(s).

The principal appeal of a non-qualified plan for most companies is that the plan can be discriminatory. It can be selective. The employer can include a single person or a small group of key personnel -- and exclude other workers.

A qualified deferred compensation plan is similar to any other qualified retirement plan:

• the employer cannot discriminate as to participation;
• the plan must be filed with and approved by the IRS;
• investment income is tax-deferred;
• the employer will receive a current tax deduction for contributions; and
• the plan must be in writing and communicated to the employee(s).