What Are Qualified Retirement Plans?

By Motley Fool Retirement Team – Updated Dec 4, 2024 at 5:14 PM

Key Points

Qualified retirement plans offer tax benefits for both employers and employees, easing retirement saving.
Employees benefit from tax-deferred growth in qualified plans and can often borrow against them.
Regularly check if your employer-sponsored plan meets IRS and ERISA requirements to maintain its qualified status.

A qualified retirement plan is a specific type of retirement plan that confers tax advantages to employers and employees. Qualified retirement plans must meet criteria set forth by the Internal Revenue Code and the requirements established by the Employee Retirement Income Security Act (ERISA).

A retirement plan must meet many requirements to be considered a qualified plan. Most of those requirements must be fulfilled by employers rather than employees. What's important to workers is that contributions to qualified plans come with tax benefits that make saving for retirement easier.

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Person smiling and standing under a banner that says Happy Retirement. — Source: Getty Images

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Self-employed individuals may also establish qualified plans. These retirement plans are usually referred to as Keogh plans or H.R. 10 plans. Because establishing a qualified plan can be complicated, it's more common for businesses with employees to establish them than for self-employed individuals to use them.

Employers are also allowed to set up non-qualified retirement plan. Non-qualified plans, such as executive bonus plans, do not provide the same tax benefits as qualified plans. Employees are required to include contributions to non-qualified plans in their gross incomes for tax purposes.

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