Final answer:
A qualified plan meets specific requirements set by the IRS and provides tax advantages, while a nonqualified plan does not meet these requirements and does not offer the same tax advantages.
Step-by-step explanation:
A qualified plan and a nonqualified plan are two different types of retirement plans.
A qualified plan is a retirement plan that meets specific requirements set by the Internal Revenue Service (IRS). These requirements include participation, nondiscrimination, and vesting rules. Common examples of qualified plans include 401(k) plans, pension plans, and profit-sharing plans. Contributions made to a qualified plan are tax-deductible, and the earnings on the contributions grow tax-deferred until the funds are withdrawn at retirement.
A nonqualified plan is a retirement plan that does not meet the requirements set by the IRS for a qualified plan. Nonqualified plans usually provide additional benefits to highly compensated employees or key executives. Unlike qualified plans, contributions to a nonqualified plan are not tax-deductible, and the earnings on the contributions are taxable in the year they are received.