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Qualified Retirement Plan
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A qualified retirement plan meets the requirements of the IRS code section 401(a) and the ERISA and therefore receives favorable tax treatment. That favorable tax treatment available to a qualified retirement plan includes the option for an employer to deduct the allowable contributions it makes annually to its employee’s qualified retirement plan. Additionally, a qualified retirement plan gives employees the option to save a portion of their income and the earnings on that income without paying taxes on it until withdrawal. Broadly, a qualified retirement plan will fit into one of two categories: defined benefit or defined contribution. The defined benefit qualified retirement plan is fading out of style as its cousin, the defined contribution qualified retirement plan, becomes more popular. A defined benefit qualified retirement plan is a plan that guarantees a specific retirement benefit based on an employee’s salary history and years of service. A defined contribution qualified retirement plan is a plan that pays a retirement benefit based on the amount of money contributed to the account and the account’s rate of investment growth.
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