What is a Non-Prototype Retirement Account?

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Old man using a laptop - What is a Non-Prototype Retirement Account?

When it comes to future plans, retirement and saving for that retirement is one of the most crucial considerations any adult has to make.

The truth is there are a lot of different types of retirement plans and accounts out there that you have to wade through to decide which one is the right one for you.

One of the options you may have come across while doing this is something called a non-prototype retirement account.

This type of account is a pension account that has assets for a specific pension held within a sub account. In other words, this is a trust account that holds assets for multiple different participants.

Retirement plans can be very intricate and difficult to understand. So that is why we thought we’d look at the non-prototype retirement account and try to give you a little clarity on what exactly it is and hopefully help you decide whether it’s the right option for you.


How Does It Work?

A non-prototype retirement account is, in essence, a trust account that companies or individual families can set up where everybody contributes, and the fund is used to invest in particular assets.

The dividends from those assets are then divided amongst the participants in their individual accounts.

These accounts then begin to accrue interest in and of themselves, and this is how non-prototype retirement accounts can accrue a good amount of cash.

One of the most important things to understand about how this type of pension account works is that it is not an individual pension or a 401K. It is a trust account that anyone signed up as a participant has access to.


Is It Common?

Because there is something that may not be very common knowledge or maybe is known under a different name, non prototype retirement accounts may seem unique. The truth is, though, that they are quite common, especially when dealing with smaller companies.

Large companies often offer 401K accounts to their employees, but when you have a small business, it could be very expensive for you to try giving your employees.

Having a non-prototype retirement account may be an easy and more cost-efficient way for companies to offer retirement planning to their teams.

So though they are not as popular as 401K’s, they are still quite commonly found, as we said, especially amongst small to medium-sized companies.


What Are the Flaws of It?

There may be a lot of advantages to having this type of retirement account, but there are also a few issues that need to be addressed.

In this type of retirement account, there are some requirements that limit the accessibility to individuals outside of the US. Along with this, it is a specific type of account, and the IRS scrutinizes it to a higher level than other types of retirement accounts.

It is also a joint account monitored by a third-party individual. So, in other words, the money you put in is not directly under your control, which may lead to some loss in the long run.


Can Anyone Have It?

A retirement account like this may seem perfect for any small business, and in truth, it is. However, there are some qualifications that need to be met in order for one to be able to utilize them.

In particular, this type of account is really only accessible to a US-based customer. This is because of the scrutinization of the IRS when it comes to non-prototype retirement accounts. Other than that one requirement, anyone else can have one of these accounts.


What is the Difference Between a Prototype and a Non-Prototype Account?

When you look at the difference between these two types of retirement accounts, it’s very simple. The main difference is that a prototype is an individual retirement plan like a 401K offered by your lawyer or purchased on your own via a third-party broker firm.

A non-prototype account is a retirement account that is a trust account that has multiple participants paying into it in order to make investments. But, again, this is controlled by a third-party entity, and you have no control over what is being done with the money.


Final Thoughts on What is a Non-Prototype Retirement Account

Non-prototype retirement accounts are trust accounts that are perfect for smaller businesses.

Of course, there are many advantages and disadvantages, just like with any type of retirement planning account, but we hope that our look at it today has helped you clarify a few of your questions.