Qualified retirement plans are “qualified” because of the tax treatment that they receive under the Internal Revenue Code. Normally the qualified retirement plans are set up by employers as part of the employee benefit packet. To be on the lists of qualified retirement plans, the plan as to meet requirements set by the Internal Revenue Code When meeting these requirements the employer or self-employed individual is allowed to deduct the contributions to the plans Employees may be allowed to make additional contributions — pre-tax — and the employees are not immediately taxed on the contributions made.
A qualified retirement plan is one that meets the requirements of section 401(a) Internal Revenue Code and the Employee Retirement Income Security Act of 1974. The plans provide favorable tax treatment but the tax treatment is different for each one. Here are the three lists of qualified retirement plans. One list is a broad category encompassing more of the category. Here is the category of qualified retirement plans.
Defined benefit plan
Defined contribution plan
The “defined benefit plan” is simply the plan that is NOT a defined contribution plans promising a fixed or at least a determinable monthly payment at the time that the employee retires. Then compared to the “defined contribution plan” it does not generate a fixed level of benefits when the employee retires. Contributions are made by the employee but at the time of retirement the amount that the employee will receive is adjusted to the expenses or losses that the account has had. Consequently the employee has no way of determining an exact amount that he or she will receive at the time of retirement. The “hybrid plan” combines the features of the defined benefit and the defined contribution plans.
The second of the lists of qualified retirement plans covers the types of qualified retirement plans.
Money Purchase Plans
“Annuity Plans” are distinguished by various things. Some of the annuity plans are the retirement annuity plan; the tax-sheltered annuity plan, self-directed annuity plan; immediate income annuity; single premium annuity plan, and many others. “Money Purchase Plans” has been referred simply to a pension plan. A fixed percentage of compensation is to be contributed to each of the eligible employees which the company or business has, annually. The “pension plan” is a steady income that is given to an employee at the time of retirement in the form of a guaranteed annuity. “Profit-sharing plans” are retirement plans where the employer is the only one contributing between 0% and 25% of participants who are eligible to participate in the plan. There is usually a maximum amount for each year.
The third of the lists of qualified retirement plans covers specific qualified retirement plan identified by the benefits received.
Government or 457 plans
Each of these plans has various definitions of tax advantages. They may be defined contribution or defined benefit or particularly for the self employed.