Qualified vs. Non-Qualified Plans
Chapters in this video
- 0:00 The qualified versus non-qualified dividing line
- 1:22 World one: Carla's qualified plan and the ERISA trust shield
- 2:50 World two: Sam's non-qualified plan and the VIP pass
- 4:29 Side-by-side showdown: IRS approval, discrimination, and creditor exposure
- 5:14 Exam trap: bankruptcy creditors and who loses their deferred compensation
- 6:10 Exam trap: non-qualified does not mean illegal or inferior
- 6:53 Rapid-fire exam recap
What this video covers
- Why "qualified" means meeting Internal Revenue Code (IRC) and Employee Retirement Income Security Act (ERISA) requirements, not "better for the employee"
- How qualified plans require IRS approval, non-discrimination, and annual contribution limits in exchange for immediate employer deductibility and tax-deferred employee growth
- Where qualified plan assets sit: a separate trust with ERISA creditor protection, even if the employer declares bankruptcy
- Why non-qualified plans intentionally discriminate in favor of highly compensated employees and key executives, with no IRS approval or contribution limits
- The delayed tax deduction for non-qualified plans: employer deducts only at distribution, not at contribution
- How non-qualified plan assets remain part of the employer's general assets, exposing participants to creditor claims in bankruptcy
- The exam trap of reading "non-qualified" as illegal or inferior, when it is simply a deliberate design choice for selective executive compensation
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