Minnesota Life Insurance License Practice Exam

Which of the following is an example of a non-qualified plan?

1. 401(k) plan

2. Individual annuity

3. Roth IRA

4. Defined benefit plan

The correct answer is: Individual annuity

A non-qualified plan is a type of retirement plan that does not meet the requirements specified by the Internal Revenue Code. Individual annuities are considered non-qualified because they do not have to adhere to the same regulatory standards as qualified plans, such as 401(k) plans or defined benefit plans. Non-qualified plans can provide more flexibility in terms of contributions and distribution options, but they do not offer the same tax advantages that qualified plans do. For instance, contributions to non-qualified plans are typically made on an after-tax basis, meaning that while the earnings grow tax-deferred, the original contributions are not tax-deductible. In contrast, the other options, such as the 401(k) plan, Roth IRA, and defined benefit plan, all qualify under the IRS guidelines for tax-advantaged retirement savings. This means they come with specific contribution limits and tax benefits that make them distinct from non-qualified plans.