Making sure that you set yourself up for a comfortable retirement is no longer something to put off until later. You have to be proactive and knowledgeable about different types of retirement plans to ensure your financial future has the security and stability it needs. One option is a non-qualified retirement plan, which can provide benefits tailored specifically for you or your business.

In this post, we’ll dive into what non-qualified retirement plans are, the pros and cons of having one, and how they differ from qualified plans like 401(k)s and IRAs. Take some time now so that you can prepare for a stress-free tomorrow!

Key Points

1. Defining Non-Qualified Retirement Plans

2. The 4 major types of Non-Qualified Plans

3. Advantages of a Non-Qualified Retirement Plan

4. How to Get Started with a Non-Qualified Retirement Plan

5. Tax Benefits of a Non-Qualified Retirement Plan

6. Understanding the Limits of Contributions for a Non-Qualified Retirement Plan

7. Common Mistakes People Make With Their Non-Qualified Retirement Plans

Defining Non-Qualified Retirement Plans

Planning for retirement is an essential aspect of financial management. It is wise to have a comprehensive understanding of the various retirement plans available. Non-Qualified Retirement Plans are one such option that offers a different set of benefits.

Non-Qualified Retirement Plans are usually offered in addition to a company’s Qualified Retirement Plan (i.e. 401K). These plans are an additional benefit given to key, highly paid employees, who are usually already contributing the maximum amount to their company-qualified retirement accounts.

These plans allow employees to defer income now, which will lower their taxes and allow them to withdraw the money when they are retired, presumably at a lower tax rate. The plan incentivizes the employee to stay with their current employer.

In contrast to Qualified Retirement Plans, Non-Qualified Retirement Plans are not subject to the Employee Retirement Income Security Act (ERISA) and are not required to adhere to federal guidelines. Essentially, Non-Qualified Retirement Plans offer greater flexibility but also carry more risk.

It is essential to research and compare your options to determine which plan is best for your unique financial situation.

The 4 major types of Non-Qualified Plans

Non-Qualified plans are an important benefit for key employees, and there are four major types to consider.

The first type is deferred compensation plans which allow an employee to delay receiving a portion of their income until a later date.

The second type, executive bonus plans, are geared towards high-level employees that receive additional compensation typically in the form of life insurance.

Thirdly, supplemental executive retirement plans, or SERPs, provide retirement benefits in addition to those provided by the company’s qualified retirement plan.

Finally, split-dollar life insurance plans provide a split of the benefits and premiums paid between two parties, typically an employee and employer.

Understanding the different types of non-qualified plans can help employers determine which plan will be the best fit for their employees.

Advantages of a Non-Qualified Retirement Plan

When looking for ways to retain key employees, it’s important to consider all of your options. While qualified retirement plans, such as 401(k)s and IRAs, have their benefits, an additional non-qualified plan may be a necessary benefit needed to keep employees that are important to the company and would be hard to replace if they left.

One major advantage is the flexibility it offers when it comes to making investments. With a non-qualified plan, you’re not limited to the investments offered by your employer or chosen custodian. Additionally, non-qualified plans allow for easier access to cash, as you’re not subject to the same strict withdrawal rules as with qualified plans.

In short, if you’re looking for ways to reward key employees, a non-qualified retirement plan may be the way to go.

How to Get Started with a Non-Qualified Retirement Plan

Setting up your own Non-Qualified Retirement Plan can be challenging, but with the right guidance, it’s possible to make it a seamless process. It’s important to consult with a financial advisor to understand the requirements and legalities surrounding your specific plan. 

A financial advisor can also help you select which non-qualified retirement plan is the best, given your situation. Remember, these plans are typically used to provide highly compensated employees with additional retirement funds beyond a company-qualified retirement plan.

If you would like to find out more about non-qualified retirement plans and see if they would be a good fit for your company, click here to schedule a one-on-one 30-minute introductory meeting.

Tax Benefits of a Non-Qualified Retirement Plan

With non-qualified retirement plans, typically taxes are paid when the money is withdrawn from the account. However, Social Security and Medicare taxes are paid and withheld when the money is earned. Meaning those taxes are not deferred.

The IRS does not require non-qualified retirement plans to have required minimum distributions. However, the plan you are in may have them. Make sure you check with your plan administrator to see if they will require RMDs. Also, there could be significant penalties for early withdrawals from this plan.

Understanding the Limits of Contributions for a Non-Qualified Retirement Plan

While the IRS does not have limits on how much can be contributed to a non-qualified retirement plan, your employer’s plan may. It is important to speak with your employer’s plan administrator so you know exactly how much income can be deferred and exactly what type of plan it is.

Common Mistakes People Make With Their Non-Qualified Retirement Plans

Non-qualified retirement plans are not usually for the rank and file employee. These plans are set up to keep highly paid and key employees, that would be hard to replace, with their current employer by offering additional benefits. In this case, a non-qualified retirement plan.

However, it is important to keep in mind these types of plans are usually in addition to a traditional company retirement plan, not in place of it. One of the drawbacks is not having early access to your money like you would in a qualified retirement plan. These plans usually have a pre-determined date on when the money can be accessed, which is usually at retirement.

In addition, these funds are not protected from creditors like a qualified retirement plan would be (i.e. 401K plan). The income that is deferred is considered a company asset and can be used to pay creditors in case of insolvency, and the employer will still have access to the money.

In qualified plans, neither creditors nor your employer would be able to access the money once it is in your account.


Non-qualified retirement plans are a great way to keep key and tough-to-replace employees. It is not designed to replace qualified retirement plans, it is designed to be in addition to.

It is important to understand all the different types of plans available so you can select the one that will work best for your company. Make sure your employees that are participating understand exactly what they are contributing to and the limitations on access to the funds in this type of account. By reading this blog you should have a good understanding of what non-qualified retirement plans are and if they will work for you.

If you would like more information about the non-qualified plans we offer, click here to schedule a one-on-one 30-minute introductory meeting.

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.

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