During the retirement years, income usually comes from three primary sources:
One type of employer sponsored plan is a qualified plan (or qualified retirement plan).
A qualified plan is established by an employer to provide retirement benefits for its employees and their beneficiaries.
A qualified plan may be a defined-benefit plan or a defined-contribution plan. Qualified plans allow the employer a tax deduction for contributions it makes to the plan. Employees typically do not pay taxes on plan assets until these assets are distributed. In addition, earnings on qualified-plan assets are tax deferred.
For a business, choosing the right retirement plan is one of its most important financial decisions because the plan must suit not only the employer's immediate needs but also its financial and business profile.
A qualified plan offers benefits to both employer and employees:
Benefits for Employers
Benefits for Employees
In order for a plan to maintain its qualified status, it must operate in accordance with requirements set by the Internal Revenue Code (IRC), the Department of Labor (DOL) and the Employee Retirement Income Security Act (ERISA) of 1974. Here we take an in-depth look at 401(k) plans, the rules surrounding them and how employees can best use them to their advantage.
401(k) and Qualified Plans: Types of Plans