Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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True or False: Contributions made to non-qualified retirement plans are tax-deductible.

True
False
Only if conditions are met
True for tax-deferred growth

The correct answer is: False

Contributions made to non-qualified retirement plans are generally not tax-deductible. This distinction is crucial when comparing non-qualified plans to qualified plans, such as 401(k)s and IRAs, which allow for tax-deductible contributions. Non-qualified plans do not offer the same tax advantages; instead, contributions to these plans are made using after-tax dollars, meaning taxes have already been paid on the income before it is contributed. This characteristic is essential for individuals and businesses considering different retirement planning strategies. Non-qualified plans may offer other benefits, such as flexibility in contribution amounts and fewer regulatory constraints compared to qualified plans. However, the lack of tax deduction on contributions is a primary reason why many individuals may opt for qualified plans when seeking tax-advantaged growth for their retirement savings.