Which of the following statements about non-qualified retirement plans is false?

Which of the following statements about non-qualified retirement plans is false?

• A. Contributions are made with after-tax dollars
• B. Contributions are tax-deductible
• C. Withdrawals are taxed as ordinary income
• D. There are no contribution limits

Answer: (B)

Non-qualified retirement plans are structured differently than qualified plans, particularly regarding tax treatment. Contributions to non-qualified plans are made with after-tax dollars, meaning that individuals do not receive an upfront tax deduction for these contributions. Therefore, the statement regarding tax-deductible contributions is indeed false. Furthermore, once the funds are withdrawn in retirement, they are typically taxed as ordinary income, aligning with how most individuals understand the tax implications on withdrawals from non-qualified accounts. Additionally, these plans do not have the same contribution limits imposed by the IRS that are applicable to qualified plans, allowing for greater flexibility in how much one can contribute. Understanding these aspects is crucial for individuals planning retirement strategies, as they highlight important distinctions in tax treatments and contribution capabilities between qualified and non-qualified retirement plans.

Non-qualified retirement plans are structured differently than qualified plans, particularly regarding tax treatment. Contributions to non-qualified plans are made with after-tax dollars, meaning that individuals do not receive an upfront tax deduction for these contributions. Therefore, the statement regarding tax-deductible contributions is indeed false.

Furthermore, once the funds are withdrawn in retirement, they are typically taxed as ordinary income, aligning with how most individuals understand the tax implications on withdrawals from non-qualified accounts. Additionally, these plans do not have the same contribution limits imposed by the IRS that are applicable to qualified plans, allowing for greater flexibility in how much one can contribute.

Understanding these aspects is crucial for individuals planning retirement strategies, as they highlight important distinctions in tax treatments and contribution capabilities between qualified and non-qualified retirement plans.