A 401(k) is one of the most common qualified retirement plans. With both traditional and Roth options, a 401(k) plan allows employees to put away money by making salary deferral contributions.
Planning for success
A qualified retirement plan is an employer-sponsored employee benefit that provides retirement plans for eligible employees. When a plan meets these requirements, the business establishing the plan and the employees benefiting from the plan are entitled to special tax benefits.
There are two types of qualified retirement plans: defined benefit and defined contribution plans. Defined benefit plans provide a guaranteed payout to employees determined by their length of service and salary earned at the time of retirement. Defined contribution plan savings, however, are determined by how much employees have saved and invested on their own behalf during their working years.
- Tax benefits
- Employer contributions are tax deductible
- Employers are not taxed on earnings
- Nontax Benefits
- Attracts high-quality employees
- Increases employee morale