Qualified Retirement Plan

AAA

DEFINITION of 'Qualified Retirement Plan'

A type of retirement plan established by an employer for the benefit of the company’s employees. Qualified retirement plans give employers a tax break for the contributions they make for their employees. Qualified plans that allow employees to defer a portion of their salaries into the plan also reduce employees’ present income-tax liability by reducing taxable income. Qualified retirement plans help employers attract and retain good employees.

INVESTOPEDIA EXPLAINS 'Qualified Retirement Plan'

Qualified plans come in two types: defined benefit and defined contribution. Defined benefit plans give employees a guaranteed payout and place the risk on the employer to save and invest properly to meet plan liabilities. A traditional pension is an example of a defined benefit plan. Under defined contribution plans, the amount employees receive in retirement depends on how well they save and invest on their own behalf during their working years. A 401(k) plan is an example of a defined contribution plan.

Qualified plans only allow certain types of investments, which vary by plan but typically include publicly traded securities, real estate, mutual funds and money market funds. They also specify when distributions can be made, typically when the employee reaches the plan’s defined retirement age, when the employee becomes disabled, when the plan is terminated and not replaced by another qualified plan, or when the employee dies (in which case the beneficiary receives the distributions).

Workers may take distributions from qualified plans before one of these triggering events occurs, but they will be subject to taxes and penalties that might make it unwise to take an early distribution. Some plans also allow employees to borrow from the plan under strict rules about how the loan must be repaid. For example, they may require that the loan be repaid within a certain number of years, that the worker pay interest (which goes back into the plan) on the loan and that the loan be repaid immediately if the employee leaves the job to which the qualified retirement plan is tied.

RELATED TERMS
  1. Qualified Annuity

    An financial product that accepts and grows funds, and is funded ...
  2. Defined-Contribution Plan

    A retirement plan in which a certain amount or percentage of ...
  3. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  4. Pension Plan

    A type of retirement plan, usually tax exempt, wherein an employer ...
  5. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  6. Defined-Benefit Plan

    An employer-sponsored retirement plan where employee benefits ...
Related Articles
  1. Retirement

    What are the benefits and advantages of the Teacher Retirement System?

    Learn about some of the primary benefits of a teacher retirement system and what similarities it has with other types of employer retirement plans.
  2. Retirement

    Who is eligible for a qualified retirement plan?

    Meeting eligibility requirements for a qualified retirement plan vary but generally dictate a minimum age and a the amount of time employed with the company.
  3. Retirement

    Is a Roth IRA a qualified retirement plan?

    Analyzes the eligibility of the Roth IRA as a qualified retirement plan and explores the differences between the Roth IRA, the traditional IRA and the 401(k).
  4. Retirement

    Is a Thrift Savings Plan (TSP) a qualified retirement plan?

    Take advantage of the government's retirement plan for employees with the Thrift Savings Plan. As with a 401(k), contributions and earnings are tax-deferred.
  5. Retirement

    Is a 401(k) a qualified retirement plan?

    Examine the different types of qualified retirement plans, and discover if a 401(k) meets the definition of a qualified retirement plan.
  6. Retirement

    Is an ESOP a qualified retirement plan?

    Acting as a qualified stock bonus plan as well as a form of a retirement plan, an ESOP has been a qualified retirement plan under the IRS since 1974.
  7. Retirement

    Is a Registered Retirement Savings Plan (RRSP) taxable in the U.S.?

    Learn how the IRS treats Canadian Registered Retirement Savings Plans that are held by U.S. citizens or residents, and discover how to avoid double taxation.
  8. Retirement

    How does a qualified retirement plan early distribution work?

    Weigh the pros and cons of taking an early distribution from a retirement account. Most early distributions are subject to penalties.
  9. Retirement

    3 Reasons To Use An Employer-Sponsored Retirement Plan

    If you aren't participating in your employer-sponsored retirement plan, you're missing out! Learn the benefits.
  10. Retirement

    Job Hunting: Higher Pay Vs. Better Benefits

    Focusing on salary may be a mistake. Find out which benefits have the highest long-run payoff.

You May Also Like

Hot Definitions
  1. Prospectus

    A formal legal document, which is required by and filed with the Securities and Exchange Commission, that provides details ...
  2. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  3. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  4. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  5. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  6. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
Trading Center