Which of the following statements is true about nonqualified plans?

In the context of nonqualified plans, the statement that only earnings are taxable upon withdrawal is accurate. Nonqualified plans are not subject to the same regulatory requirements as qualified plans, which means they do not receive the same tax benefits. In a nonqualified plan, the contributions made to the plan are typically made with after-tax dollars, meaning they are not tax-deductible at the time of contribution. When funds are withdrawn, it is primarily the earnings on those contributions that are subject to taxation. Therefore, the taxation occurs only on the earnings accrued while the money is invested within the plan, allowing the original contributions to remain tax-free upon withdrawal.

This understanding highlights the nature of nonqualified plans and their tax implications, creating a clear delineation between the taxation of contributions and earnings, ensuring that participants are aware of how withdrawals will be treated tax-wise.