Non-Qualified Plans (W-2)

Non-Qualified Plans are employer-sponsored benefit programs that do not meet IRS requirements for favorable tax treatment under qualified plan rules, such as 401(k) plans. These plans often provide deferred compensation or additional retirement benefits to select employees, typically executives or highly compensated staff. Unlike qualified plans, contributions to non-qualified plans are not subject to the same contribution limits and are taxed differently.

Key Facts

• Purpose: Provide supplemental benefits beyond qualified retirement plans, often to key employees.‍
• Tax Treatment: Contributions are generally taxable when paid or vested, not when contributed.‍
• Reporting: Amounts paid under non-qualified plans are reported on the employee’s W-2 form as income.‍
• No Contribution Limits: Unlike qualified plans, non-qualified plans have fewer restrictions on contribution amounts.‍
• Risk: Non-qualified plans are usually unsecured, meaning employees may lose benefits if the company faces financial trouble.

1. What is a non-qualified plan?

A benefit plan not subject to qualified retirement plan rules, often for executives or select employees.

2. How is income from non-qualified plans reported?

It appears on the employee’s W-2 as taxable income in the year received.

3. Are there limits on how much can be contributed?

No, non-qualified plans typically have no IRS-imposed contribution limits.

4. When do employees pay taxes on non-qualified plan benefits?

Taxes are generally due when the benefits are distributed or vested, not at contribution.

5. What risks are associated with non-qualified plans?

Since these plans are unsecured, benefits depend on the company’s financial stability.