What is a Qualified Retirement Plan?

Answer:
The Internal Revenue Code and the Employee Retirement Income Security Act of 1974

spell out several requirements that a retirement plan must meet in order to be considered a qualified retirement plan.

When a retirement plan meets the requirements, tax benefits kick in. The employer can deduct allowable contributions made on behalf of plan participants in the year they were made.

Plan participants can exclude contributions from taxable income and defer all taxes and earnings from taxation until withdrawal. In addition, rollovers to other tax-deferred investments such as IRAs are permitted.

Qualified retirement plans come in several different types including defined benefits plans, defined contribution plans, and hybrid plans that blend attributes from both defined benefits and defined contributions plans.

There are dozens of different type of qualified retirement plans including IRAs, 401Ks, 403(b)s, profit sharing plans, Employee Stock Ownership Plans, Keogh plans, and SIMPLE plans.

Each type of qualified retirement plan has specific rules and requirements dictating how the plan works, employer size limits, contribution limits, early withdrawals, catch up contributions, and other details.


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