Retirement Plans
Qualified Retirement Plans
A Qualified Retirement Plan is a plan that meets the requirements of the Internal Revenue Code and is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries.
There are two kinds of qualified plans: defined-benefit plans and defined-contribution plans.
Defined Benefit:
An employer-sponsored retirement plan where employee benefits are sorted out based on a formula, using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties.
- 412(i)
- Pension
Defined Contribution:
A defined contribution plan provides an individual account for each participant. The benefits are based on the amount contributed and are also affected by income, expenses, gains and loses.
In a defined contribution plan, employee or the employer (or both) contribute to an individual account for the employee. The contributions are invested, for example in the stock market, and the returns on the investment (which may be positive or negative) are credited to the individual's account. On retirement, the member's account is used to provide retirement benefits.
- 401(k)
- Profit Sharing
- SEP IRA
- Simple IRA
- Simple 401(k)
- Uni-K
- Individual IRA
- Roth IRA
Non-Qualified Plans:
A retirement plan that does not meet the IRS (or ERISA) requirements for favorable tax treatment. Non-qualified retirement plans are funded by employers and are more flexible than, but do not have the tax benefits of, qualified retirement plans. Benefits are paid at the retirement age in the form of annuities, which are taxed as ordinary income tax, or in lump sum payments, which can be transferred into an IRA to defer taxes.
