What's the difference between the two? Well, a non-qualified plan, on the one hand, does not meet the many requirements of the Federal Income Revenue Code (IRC) or Employee Retirement Income Security Act of 1974 (ERISA). These plans may be discriminatory in application and are generally used to provide deferred compensation to business owners and employees. Because these plans allow a broader flexibility to businesses, however, they do not receive the same favorable tax treatment of qualified plans. For example, employers receive no tax deduction until the employee receives proceeds from the plan. In most cases, non-qualified plan proceeds are taxed to employees — sometimes immediately — even when the funds will not be received until much later in the future.
Consumers can purchase non-qualified annuities to provide systematic growth for a specified period of time — including for life. Although they do not meet the many requirements of the IRC or ERISA, the tax-deferred growth of annuities make them well-suited for use in otherwise taxable non-qualified plans, and provide a growing market among Seniors, with their longer-term wealth accumulation and retirement planning needs, as well as for younger clients with more immediate income needs.
