Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

Both qualified plans and nonqualified plans typically share the characteristic of allowing the accounts to grow tax-deferred. This means that investment earnings, such as interest, dividends, and capital gains, are not taxed until they are withdrawn from the account. This tax deferral can lead to significant advantages in terms of compounding growth over time, as funds can grow without the immediate burden of taxes.

Qualified plans, which comply with IRS requirements, are often sponsored by employers and come with benefits such as tax-deductible contributions and certain protections under federal law. Nonqualified plans, on the other hand, do not have to meet these IRS requirements and can be more flexible in terms of contribution limits and distribution options.

While tax deductions on contributions can vary between qualified and nonqualified plans, both types ultimately allow for accumulation of investment growth without immediate taxation, making tax-deferred growth a fundamental characteristic that plays a crucial role in retirement planning and savings strategies.