What is a qualified retirement plan?
A retirement plan is “qualified” if it meets the rules and regulations of the Internal Revenue Service. Contributions to such a plan are generally tax-deductible for the employer and earnings on such contributions are tax-deferred while they remain in the plan. The participant in a “qualified” plan is not taxed on the contributions or the earnings until they are withdrawn from the plan.
There are two distinct elements embodied in the term “qualified retirement plan.” The main element is the term “retirement plan.” A retirement plan means any plan or program maintained by an employer or an employee organization (or both) that (1) provides retirement income to employees or (2) results in a deferral of income by employees for periods extending generally to the end of employment or beyond, regardless of how plan contributions or benefits are calculated or how benefits are distributed. [ERISA § 3 (2)] The other element is the term “qualified,” which means that the retirement plan is afforded special tax treatment for meeting a host of requirements of the Internal Revenue Code (the Code). Qualified retirement plans fall into two basic categories: defined contribution plans and defined benefit plans. A defined contribution plan provides benefits based on the amount contributed to an employee’s individual account, plus any earnings and forfeitures of other employees that are
A qualified plan is simply one that is described in Section 401(a) of the Tax Code. The most common types of qualified plans are profit sharing plans (including 401(k) plans), defined benefit plans, and money purchase pension plans. In general, your contributions are not taxed until you withdraw money from the plan. Most retirement plans that you obtain through your job are qualified plans.