Qualified Retirement Plan Definition

A qualified retirement plan is a valuable tool for both employers and employees, offering tax advantages that are granted by meeting specific criteria outlined in the Internal Revenue Code and the Employee Retirement Income Security Act. This allows employers to take tax deductions for contributions made to an employee's account, while also deferring taxes on employee contributions and investment growth until withdrawals are made. It's important to note that contribution limits and penalties for early withdrawal apply to all qualified plans. Common examples of such plans include 401(k), profit sharing, and 403(b) plans, some of which must be established by employers while others, such as traditional and Roth IRAs, can be set up by individuals.