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

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What characterizes a non-qualified retirement plan?

It offers tax-deductible contributions
It accepts high-income earners only
It does not offer tax advantages for contributions
It guarantees lifelong income

The correct answer is: It does not offer tax advantages for contributions

A non-qualified retirement plan is characterized by not offering tax advantages for contributions. Unlike qualified plans, which adhere to specific IRS guidelines and allow for tax-deferred growth as well as tax-deductible contributions, non-qualified plans do not provide these benefits. Contributions made to non-qualified plans are typically made with after-tax dollars, meaning that the contributions themselves are not tax-deductible. Additionally, while non-qualified plans often provide flexibility in terms of contribution limits and participant eligibility, they do not deliver the same tax deferral and tax advantages that qualified plans do. This distinction is crucial for understanding the nature of different retirement plans and their potential impact on an individual's financial strategy. The other options imply certain benefits or restrictions that apply to different types of retirement plans, but non-qualified plans specifically lack the tax advantages associated with contributions.