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Qualified Retirement Plans

Qualified retirement plans are set up by employers to provide employees with opportunities to save for retirement. A self-employed person or small business owner can also set up some of these plans, even when there are no employees in the business.

Qualified plans are referred to as qualified because they qualify for favorable tax treatment under the Internal Revenue Code. Provided they meet the requirements for maintaining such plans, employers and self-employed individuals get to deduct their contributions to the plan. Also, employees are not immediately taxed on the contributions made on their behalf, they can often make additional contributions on a pre-tax basis, and earnings on their retirement plan funds accrue on a tax-deferred basis. This is a pretty good deal for both the employer and the employee.

If you are an employee, chances are pretty good that your employer offers a qualified retirement plan as part of your compensation package. According to data released by the Bureau of Labor Statistics, employer-provided retirement plans were a common employee benefit in the United States, available to 74 percent of all full-time workers in private industry in March 2010. Not everyone who has access to a plan participates, but the numbers are likely to increase as people realize that our troubled Social Security system is likely to provide limited benefits in the years to come.

The type of qualified plan offered by your employer affects the type of benefits you will receive at retirement. Generally speaking, a qualified retirement plan will fall under one of the following three broad categories:

Tip

Tip

As long as you don't have to set up the plan yourself, the only things that you have to really be concerned about are making sure that you understand your employer's retirement benefits and making sure that you invest in them.


Drilling down even further, there are five general types of plans that may qualify for tax benefits. The five types of plans are:

Within the respective broad categories mentioned above, qualified retirement plans come in various flavors. To find out about the benefits they offer, take a closer look at the following most commonly used qualified plans:


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