Qualified retirement plan

Also found in: Acronyms.

Qualified retirement plan

A retirement plan established by employers for their employees that meets the requirements of Internal Revenue Code Section 401(a) or 403(a) and is eligible for special tax considerations. The plan may provide for employer contributions, as in a pension or profit-sharing plan, as well as employee contributions. Employers can deduct plan contributions made on behalf of eligible employees on the business's tax return as business expenses. Plan earnings are not taxed to the employee until withdrawn.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Qualified Plan

An annuity that one buys along with one's employer. That is, the annuitant and his/her employer both make tax-deferred contributions to the plan for a certain period, with withdrawals coming upon retirement. If the annuitant begins withdrawals before a certain age, withdrawal penalties apply. One may continue to make contributions until a certain age, usually around 65.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

Qualified retirement plan.

A qualified retirement plan is an employer sponsored plan that meets the requirements established by the Internal Revenue Service (IRS) and the US Congress.

Pensions, profit-sharing plans, money purchase plans, cash balance plans, SEP-IRAs, SIMPLEs, and 401(k)s are all examples of qualified plans, though each type works a little differently.

Employers may take a tax deduction for contributions to qualified plans, and in some plans employees may make tax-deferred contributions.

Among the other requirements, a qualified plan must provide for all eligible employees equivalently. That means the plan can't treat highly paid employees more generously than it does less-well paid employees, though one group of employees, such as those within five years of the official retirement age, may receive different treatment than another group.

In contrast, a nonqualified plan may be available to some employees and not others. In some plans, nonqualified contributions are made with after-tax dollars, either by the employer or the employee, although any earnings in the plan are tax deferred.

In other plans, future benefits are promised but contributions are not actually deposited in an account established for the employee.

Mandatory federal withdrawal rules that apply to qualified plans do not apply in the same way to nonqualified plans, though nonqualified plans are subject to stringent regulation as well.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
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