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What is A Tax Qualified Retirement Plan: Everything You Need to Know

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Retirement planning is essential in securing a comfortable and stable future. It lets you take control of your finances and gives you a structured approach to building a nest egg that you can use later in life.

January 25, 2024
Author: NCH

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There are several tools that you can use to plan for your retirement. But out of all of them, one stands out the most: Tax Qualified Retirement Plans. 

Tax Qualified Retirement Plans are designed specifically to help you get more tax savings in your retirement. But what other benefits do they offer?

If you’re curious why arrangements are considered some of the most powerful instruments for retirement planning, you’ve come to the right place. 

In this blog, we’ll explore Tax Qualified Retirement Plans, how they work, and what makes them different from Non-qualified Retirement Plans. We’ll also discuss their benefits and how they can help you get more tax savings. 

Join us as we uncover what it takes to guarantee a financially secure future. 

What is A Tax Qualified Retirement Plan?

A Tax Qualified Retirement Plan is a program that meets the requirements set by Section 401(a) of the Internal Revenue Code and Employment Retirement Income Security Act (ERISA) guidelines. 

They come in two main categories: defined contribution and defined benefit. Defined Contribution (DC) plans are retirement arrangements typically employer-funded.

In this plan, employees contribute a fixed percentage of their paycheck to a retirement account while their employers match their contributions. 

Their savings won’t be taxed until it’s withdrawn during their retirement. Common examples of DC plans include 401(k), 401(b) and simple IRA accounts. 

Meanwhile, Defined Benefit (DB) plans allow employees to receive benefits from their employer upon retirement. The amount they will get will be based on factors like length of employment and salary history.

Aside from these two main categories, there are other examples of qualified plans, such as:

Profit-sharing Plans

A profit-sharing plan, or Deferred Profit-Sharing Plan (DPSP), is a retirement arrangement where a company gives employees a share of their profits.

Like defined benefit plans, the employer typically manages and arranges DPSPs. They will decide how much company profit they want to give to which employee based on a formula they think works for them. 

457 Plan 

457 plans are the 401(k) of government employees. They operate similarly to their private counterparts, allowing employees to deposit a portion of their monthly earnings into a retirement savings account. 

Qualified Vs. Non-qualified Retirement Plans

Apart from qualified plans, there’s another instrument that you could use for retirement planning: non-qualified plans

Unlike its qualified counterparts, the ERISA guidelines do not govern non-qualified retirement plans. They also have fewer tax benefits to offer. 

Those with non-qualified accounts will not be able to deduct their contributions from their tax filings. Aside from this, they also have different contribution limits. 

Non-qualified accounts have no limit. Employees with these plans can make as many contributions as they want. However, those in qualified plans can only contribute up to $23,000 of their salary to their traditional 401(k). 

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Lastly, non-qualified programs don’t have government protection. Since ERISA does not cover them, there’s no guarantee that employees will receive their savings in the future. For example, if a business goes bankrupt, creditors can use the non-qualified accounts of its employees to satisfy debts.

Although non-qualified retirement plans give you more freedom, they leave you with less tax savings and a false sense of security. 

Benefits of Qualified Plans

There’s a reason why qualified plans are considered one of the most powerful instruments for retirement planning. They offer several benefits to retirees like you, such as:

Tax Savings

Qualified plans can help you reduce your tax liabilities in several ways. For instance, you can use them to lower your annual taxable income. According to the Tax Code’s Section 401(a), contributions made to qualified plans are tax deductible. 

Aside from this, earnings placed into these accounts are tax-deferred. Any capital gains or dividends your savings earn will not be taxed until you withdraw them.

Creditor Protection

The ERISA protects qualified plans from certain claims by keeping them separate from the employer’s assets. So, if a business goes bankrupt or receives a legal judgment, creditors won’t be able to access their employee’s retirement savings. 

Employer Contribution

Some employers are willing to match their employee’s contributions to their retirement accounts. This option allows you to get more savings by participating in their plan. 


Qualified plans are highly flexible. You can transfer your savings to a simple IRA or roll them over to a new account when you change jobs without tax consequences. 

Catch-up Contributions

Although qualified plans have a contribution limit, they allow you to add additional funds to your account. 

Participants aged 50 or older can make catch-up contributions of up to $7,500 for 2023 and 2024. This additional contribution will allow you to accelerate your savings or bolster it if you’ve fallen behind. 

Start Saving For The Future Today

Ultimately, qualified plans are an excellent way to build your nest egg safely and securely. These retirement arrangements will help you secure your future while getting you more tax savings today. 

If you need help kickstarting your retirement planning, look no further than NCH. 

NCH is one of Nevada’s leading business formation specialists. We have a team of licensed professionals who will help you develop a personalized strategy for your retirement plans. 

Whether you’re interested in getting a simple IRA or 401(k), they will help you start on the right foot. NCH will ensure that your chosen plan is aligned with your long-term goals. 

By working with NCH, you can rest easy knowing that your future is in good hands. Don’t leave your destiny to chance; talk to NCH today, and let us help you plan for retirement.

To learn more about our services, visit our website here or call us at 1-800-508-1729.

Disclaimer: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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