Texas Life Agent Practice Exam

Which of the following is NOT considered a 'qualified' retirement plan?

1. Traditional IRA

2. 401(k) plan

3. Split Dollar plan

4. Roth IRA

The correct answer is: Split Dollar plan

A qualified retirement plan is generally defined by the Internal Revenue Code and meets specific requirements to receive favorable tax treatment. These plans are established by employers and offer tax advantages regarding contributions and distributions to employees. Employers can deduct contributions, and employees typically do not pay taxes on those contributions until they withdraw the funds. The traditional IRA and 401(k) plan are both considered qualified retirement plans as they meet these predetermined criteria. They allow for tax-deductible contributions and tax-deferred growth of investments until retirement. The Roth IRA is also a qualified retirement plan, but it has different tax treatment. Contributions to a Roth IRA are made with after-tax dollars, meaning taxes are paid upfront, but qualified withdrawals in retirement are tax-free, making it a tax-advantaged account. In contrast, the split dollar plan is not a qualified retirement plan. It is primarily a method used for providing life insurance benefits, typically used in executive compensation strategies or as a tool for employer-sponsored life insurance policies. Because it does not meet the specific requirements set forth for qualified retirement plans, this is why it stands out from the other options listed.