Qualified Retirement Plan

A qualified retirement plan is one that is eligible for certain tax benefits because it has met the standards set up the Internal Revenue Code and the Employee Retirement Income Security Act. Specifically, those which meet the requirement may receive four specific benefits: first, employers may deduct contributions made to the employee. Second, participants in a qualified retirement plan may deduct all contributions from their taxable income. Third, any earnings in the funds held by the plan's trust are not taxable to that trust. Fourth, participants can often transfer money into an individual retirement account (IRA), and thus avoid further taxation. There are two kinds of qualified retirement plans: defined benefit plans, and defined contribution plans. The former is a traditional company pension plan, whereby benefits are typically calculated by a formula that accounts for years of employment, age, and wages. The latter is based upon how an individual invests. How much he receives upon retirement is attributable to investment performance over the years.

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