As soon as you start thinking about your future, then it is the perfect when to open an IRA. Getting the best IRA company that can offer better returns in a wise thing to do. But even though many people secure their retirement through saving part of their income into qualified retirement plans which are offered by their employers, the limits of such plans may not help accomplish a certain individual’s retirement goals.
Therefore, most experts’ retirement advice is that employees these days must become more open-minded when it comes to other retirement options such as non-qualified retirement plans.
What Is a Non Qualified Retirement Plan?
Unlike most qualified retirement plans offered by employers which have a lot of limitations, a non qualified retirement plan is flexible, thus people who are planning to invest in such need to meet a few set of requirement. And since most non qualified plans are designed to meet the needs of the investors, there are plenty of options to choose from. Depending on several factors, these plans can be simple or complex.
Non qualified IRAs are usually funded with cash value life insurance policies, which accumulate cash in the policy from the portion of the paid premiums. Once a certain premium is fully paid, the policy is considered paid up. No more payments are required and the insurance policy remains until the death of the insured. There are no limits when it comes to contribution, and the cash value can be withdrawn and used as an income replacement during retirement, free of tax. These are just few of the reasons why a cash value life insurance is considered as the ideal non qualified plan. In addition, a tax-free loan is available in case the owner needs to withdraw money from the cash value of the policy, subject to interest.
Since these plans are not under ERISA regulation, they do not have the same advantages when it comes to taxes. They are two conditions that must be met in order for the plan assets to grow tax-deferred: One, these assets must be segregated from the employers’ other assets; and two, they are subject to a substantial risk of forfeiture, which may occur in case of bankruptcy.
Benefits of Non Qualified Plans
There are plenty of advantages of participating in a retirement plan such as non qualified IRA. First of all, there are no limits when it comes to contributions, and this means that employees can save as much as they want regardless of their income or rank. Additionally, as long as the requirements on segregation and forfeiture are satisfied, the investment can enjoy tax-deferred growth just like in a regular IRA.
Furthermore, non qualified plan holders are eligible for substantial death benefits and may be provided with different types of protection with the use of riders. There is also no need to feel discriminated with ranks and income, because non qualified plans are free of ERISA regulations. And since these plans have substantial flexibility, investors can choose the one that is just right for their goals and needs. Since these plans require less reporting and filing, it is not really a hassle to maintain such retirement plans.
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