New York Child Abuse Identification and Reporting Practice Exam

Which type of policy must adhere to federal tax qualification requirements?

1. Nonqualified plans

2. Qualified plans

3. Group plans

4. Individual plans

The correct answer is: Qualified plans

The answer is qualified plans, as these are specifically designed to meet federal tax qualification requirements under the Internal Revenue Code. Qualified plans, which often include pension plans and profit-sharing plans, provide tax benefits to both employers and employees. Contributions made to these plans are typically tax-deductible for the employer, and employees do not pay taxes on the contributions until they withdraw those funds during retirement. In contrast, nonqualified plans do not have to adhere to the same federal tax rules and do not provide the same tax benefits. Group plans and individual plans, while they may offer insurance and other benefits, do not fall under the category of retirement plans that are subject to the stringent federal tax qualification requirements that qualified plans must adhere to. This distinction is crucial for understanding the tax implications of retirement savings and employer-sponsored plans.