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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 16544
Experience:  Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level
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What is the difference between qualified deferred compensation

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What is the difference between qualified deferred compensation plan and non-qualified deferred compensation plan?

Megan C :

Thank you for your question, and thanks for using JustAnswer.com

Megan C :

Qualified Deferred compensation plans are plans such as a 401(k) and other similar qualified vehicles

Megan C :

Non qualified plans are plans that do not have the tax benefits of a qualified plan, and that are not covered under ERISA

Megan C :

Because a non-qualified plan is not covered under ERISA, the employer has more flexibility as to contributions. They can discriminate against employees freely, benefits do not have to follow any rules (for example, the $17,500 limit for 401(k) plans.

Megan C :

But, the employer gives up the up-front deduction for contributions to the plan, but they can take a deduction when benefits are paid.

Megan C :

A great discussion of qualified vs nonqualified plans can be found, HERE

Megan C :

Please let me know if you have further questions.

Customer:

Thank you for your answer.

Customer:

What are the rules to make the plan qualified?

Customer:

And so, non-qualified plan is those plan that are NOT qualified, right?

Megan C :

You would follow the rules for a 401(k) or similar vehicle

Megan C :

that's right...they are not qualified

Customer:

Does the IRS define what qualified plans mean?

Megan C :

Yes, you would look to the rules for plans such as 401(k), SEP IRA, Defined Contribution plans, etc

Customer:

OK. Are there a list of plans that are qualified?

Megan C :

Let me check

Customer:

ok

Megan C :

thanks

Megan C :

You will have to follow the rules of ERISA, which can be found, HERE

Customer:

Thank you for your help! These are all what I need for now. Have a great day!

Megan C and other Finance Specialists are ready to help you
Thanks, Kendrick for your positive rating. Please come back and visit me any time you have a question that needs answered. It was a pleasure working with you today.