J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Nonqualified Retirement Plans

If you have a business and want to provide retirement benefits without the limitations and requirements imposed on qualified plans, you can use nonqualified plans. Nonqualified plans are simply plans you design yourself to provide you and/or your employees with whatever benefits you desire. Benefits under the plan are not taxed to the employees until they receive them and include them in their income. But the plan must restrict distributions to fixed events (e.g., separation from service, a fixed date, a change in company ownership, or an unfortunate emergency) or participants become subject to interest and penalties.

There are no nondiscrimination rules to comply with. You can cover only those employees you want to give additional retirement benefits, and this can be limited to owners or key executives. There are no minimum or maximum contributions to make to the plan. However, because nonqualified plans give you all the flexibility you need to tailor benefits as you see fit, the law prevents you, as the employer, from enjoying certain tax benefits. You cannot deduct amounts now that you will pay in the future to employees under the plan. Your deduction usually cannot be claimed until benefits are actually paid to employees. However, there is 1 circumstance under which you can deduct these amounts: If you segregate the amounts from the general assets of your business so that they are not available to meet the claims of your general creditors, the ...