What is one main difference between qualified plans and tax-advantaged plans?

The distinction between qualified plans and tax-advantaged plans is rooted in the regulatory framework governing them. Tax-advantaged plans can refer to a broader category of plans that provide some form of tax benefit, but they may not necessarily be subject to the Employee Retirement Income Security Act (ERISA) rules that apply to qualified plans.

Qualified plans, which include types like 401(k) plans and pension plans, must meet specific requirements set forth by the IRS and ERISA, including coverage for all eligible employees and non-discrimination rules that prevent highly compensated employees from receiving disproportionate benefits compared to other employees.

On the other hand, tax-advantaged plans may include arrangements like Individual Retirement Accounts (IRAs) or certain types of life insurance policies, which do not fall under ERISA's jurisdiction and thus can have varying regulations and benefits. The absence of ERISA provisions allows for more flexibility in how these plans are structured and administered, which is why it is accurate to say that tax-advantaged plans are not always ERISA-qualified. This understanding is crucial, as it impacts the eligibility, funding, and regulatory compliance aspects of different retirement savings options.