Which statement is true regarding the tax implications for Nonqualified Plans?

The statement that tax deductions are only realized when employees receive the funds is accurate concerning Nonqualified Plans. Unlike qualified retirement plans, which offer immediate tax deductions for employer contributions, Nonqualified Plans do not provide the same upfront tax benefits. Instead, the employer can only claim a tax deduction when the benefits are ultimately paid out to the employee.

This deferred taxation approach means that employees will pay taxes on the amount they receive when they access their benefits, rather than at the time of contribution. Nonqualified Plans often allow for greater flexibility in terms of benefits and can be tailored to specific employees, but they do not enjoy the same tax advantages as qualified plans.

Understanding this distinction is important as it affects both the employer's immediate tax treatment regarding contributions as well as the employees' tax liabilities upon receipt of the benefits.