3 Non-Qualified Retirement Plan Examples

Planning for retirement is an essential aspect of achieving long-term financial security. While qualified retirement plans, such as 401(k)s and IRAs, often take center stage in retirement planning, non-qualified retirement plans can also play a crucial role in meeting your financial goals. These plans offer flexibility and unique benefits that can help supplement traditional retirement savings vehicles. In this blog post, we will explore various non-qualified retirement plan examples and discuss their advantages and disadvantages. By understanding your options, you can make informed decisions about which plans are best suited for your specific needs and retirement goals.

Non-Qualified Retirement Plan Examples

Deferred Compensation Non-Qualified Retirement Plan Examples

Deferred compensation plans allow employees to defer a portion of their income to be paid out at a later date, typically during retirement. These plans can be particularly attractive for high-income earners who want to defer taxes on their earnings until they are in a lower tax bracket. Some common types of deferred compensation plans include:

Non-Qualified Deferred Compensation (NQDC) Plans: NQDC plans are agreements between an employer and an employee, where the employee voluntarily defers a portion of their salary or bonus. The employer may also contribute to the plan. Earnings grow tax-deferred until they are distributed, usually upon retirement or separation from the company.

Supplemental Executive Retirement Plans (SERPs): SERPs are employer-sponsored plans that provide additional retirement benefits to select key employees or executives. Benefits are typically based on a percentage of the employee’s salary and years of service, and are paid out as a deferred compensation arrangement.

Executive Bonus Plans

Executive bonus plans, also known as Section 162 plans, allow employers to provide additional benefits to select key employees by paying for a life insurance policy on their behalf. The employee owns the policy, and the premiums are considered a bonus and taxable as income. The cash value of the policy grows tax-deferred, and the employee can access the funds through policy loans or withdrawals, providing a source of supplemental retirement income.

Split-Dollar Life Insurance Plans

Split-dollar life insurance plans are arrangements between an employer and an employee, where the cost and benefits of a life insurance policy are shared. These plans can be structured in various ways, but they generally involve the employer paying a portion or all of the premiums, while the employee receives a death benefit and potentially access to the policy’s cash value. Upon the employee’s retirement or termination of the plan, the employer may recover their premium contributions, while the remaining cash value can provide supplemental retirement income for the employee.

Conclusion

Non-qualified retirement plans can be an essential component of a comprehensive retirement strategy. They offer flexibility and unique benefits that can help high-income earners and key employees maximize their retirement savings while minimizing taxes. By understanding the various non-qualified retirement plan examples and weighing their advantages and disadvantages, you can make informed decisions about which plans best align with your financial goals and retirement needs. Consult with a financial advisor to discuss your options and develop a tailored retirement strategy that meets your unique objectives.