A qualified plan must meet a certain set of requirements in the Internal Revenue Code such as minimum participation, vesting and funding requirements. In return, the IRS provides significant tax advantages to encourage businesses to establish retirement plans including:
- Employer contributions to the plan are tax deductible.
- Earnings on investments accumulate tax-deferred which allows contributions and earnings to compound at a faster rate.
- Employees are not taxed on the contributions and earnings until they receive the funds.
- Employees may make pretax contributions to certain types of plans.
- Ongoing plan expenses are tax deductible.
In addition, sponsoring a qualified retirement plan has the following advantages:
- Attract experienced employees in a very competitive job market: Retirement plans are fast becoming a key part of the total compensation package.
- Retain and motivate good employees: A retirement plan has the ability to keep employees from moving over to your competitors.
- Help employees save for their future since Social Security retirement benefits alone will be an inadequate source to support a reasonable lifestyle for most retirees.
- Plan assets are protected from creditors.
Employers can choose between two basic types of retirement plans: defined contribution and defined benefit. Both a defined benefit and defined contribution plan may be sponsored to maximize benefits. Our consultants can help you choose the right plan for your company.