Which of the following retirement plans offer tax benefits quizlet?
The IRS requires that all qualified employer-sponsored retirement plans provide coverage to a broad cross section of employees. This is to prevent plans from discriminating against rank-and-file workers in favor of highly compensated employees, who can make decisions about the plan.
401(k) and 403(b) plans are the most popular types of qualified retirement plans, and they are commonly used by companies that employ more than 100 people. These plans provide many advantages to younger workers, including the ability to set aside a portion of their salary into an account that will grow tax free over time.
Non-Qualified plans are those that do not meet the IRS guidelines for favorable tax treatment, and they can be used to give employees supplemental retirement income. Examples of nonqualified plans include SERP (Supplemental Executive Retirement Plans) and 457(f) arrangements.
Tax-Deferred Qualified Pension Plans are those that have the contribution amount tax deductible, and earnings “build up” tax deferred. Funds are paid into a tax-qualified retirement plan with “before-tax” dollars, and distributions are taken only after the funds have been invested in an investment that pays interest and dividends.
Upon retirement, these employees receive the amount that they contributed to the account. This can be a fixed amount, or it may be based on their age at retirement. The amount of the retirement benefit depends on the contributions made by the employee and the employer, as well as their own performance in the stock market.