What is a qualified retirement plan and how do I know if mine is one?
Under the Employee Retirement Income Security Act, there are several qualified retirement plans in the US. How do I know if I have one of these plans?
The Employee Retirement Income Security Act regulates qualified retirement plans in the United States, but do you know what these are and if you have one?
What is a qualified retirement plan?
A qualified retirement plan is any retirement plan that meets the requirements of Section 401(a) of the United States Revenue Code.
According to the code, in general, a plan may not require as a condition of participation that an employee complete a period of service with the employer that extends beyond the date on which the employee turns 21; or the date the employee completes one year of service.
Contributions made are tax deductible and can be made by either the employer or the employee. The most common type is the defined contribution plan- through this the employer and/or employee establish a fixed amount to be added to the employee’s individual account, so that the balance of the account depends merely on the amount of these contributions and the interest rate at which the account accumulates.
How do I know if I have a qualified retirement plan?
If you are an employee and part of your salary goes into a retirement account or you contribute extra voluntarily, you most likely have a qualified retirement plan as most workers do. Common plans include 401(k), 403(a), 403(b) and SIMPLE IRAs.
To determine if your retirement plan is a qualified plan, it’s best to check with your employer or plan administrator, as every situation is different.