Qualified retirement plan

A qualified retirement plan is an employer sponsored plan that meets the requirements established by the Internal Revenue Service (IRS) and the US Congress.

Pensions, profit-sharing plans, money purchase plans, cash balance plans, SEP-IRAs, SIMPLEs, and 401(k)s are all examples of qualified plans, though each type works a little differently.

Employers may take a tax deduction for contributions to qualified plans, and in some plans employees may make tax-deferred contributions.

Among the other requirements, a qualified plan must provide for all eligible employees equivalently. That means the plan can't treat highly paid employees more generously than it does less-well paid employees, though one group of employees, such as those within five years of the official retirement age, may receive different treatment than another group.

In contrast, a nonqualified plan may be available to some employees and not others. In some plans, nonqualified contributions are made with after-tax dollars, either by the employer or the employee, although any earnings in the plan are tax deferred.

In other plans, future benefits are promised but contributions are not actually deposited in an account established for the employee.

Mandatory federal withdrawal rules that apply to qualified plans do not apply in the same way to nonqualified plans, though nonqualified plans are subject to stringent regulation as well.