A qualified plan refers to whether or not an investment plan offered by an employer qualifies for tax breaks under internal revenue service (IRS) guidelines. An individual retirement account (IRA) is not offered (with the exception of SEP and SIMPLE IRAs) by an employer and therefore is not a type of qualified plan.
IRAs are savings plans that allow individuals the benefit of tax-advantaged growth. They are sought-out by individuals in an effort to take advantage of this.
Traditional IRAs give investors a write-off. However, tax must be paid on distributions. Traditional IRAs allow individuals to invest on a tax-deferred basis. They may be suitable for individuals who are in a high tax bracket and anticipate being in a lower tax bracket at retirement.
Roth IRAs require that investors pay tax on contributions. However, no tax is assessed on distributions. Roth IRAs allow individuals to invest on a tax-free basis. They may be suitable for individuals who are in a low tax bracket and anticipate being in a higher tax bracket at retirement.
IRA plan providers allow holders to designate beneficiaries. Some plan holders allow beneficiaries for multiple generations. There are required minimum distributions (RMD) that involve the life expectancy of IRA holders and tables that list their values available from the IRS. These RMDs are mandated in different situations; for many they begin on April 1 the year following a holder turns 70.5.
Some employers offer defined contribution and defined benefit pensions through qualified retirement plans. Employers receive incentives from the U.S. government to create these plans. There has been a trend away from defined benefit plans toward defined contribution plans. With many employers, employees may elect to take part in retirement savings plans where employers match contributions and savings may grow on a tax-advantaged basis.