From
Your Perspective:
Small business retirement plans
Qualified retirement
plans
Retirement plans that receive special tax treatment from the federal government are considered
qualified plans
— and must meet the requirements established by Congress under ERISA, the Employee Retirement Income Security Act.
Qualified
plans vary significantly, from those that require detailed IRS
reporting and professional administration to simpler plans that you can
set up and manage relatively easily. But they all share some key
features, including an annual
cap
on contributions, which varies from plan to plan, and, ultimately, required withdrawals.
You
can establish a qualified plan for one person or for a number of
employees — in some cases capped at 100. But if you adopt one of these
plans, you must include every eligible employee on an equal basis if
your plan is going to qualify for the tax advantages. You can’t use the
plan to reward certain employees or to put away more for yourself, on a
percentage basis, than for the others. In fact, there are restrictions
on what any highly paid employee can contribute to certain plans.
Some of the tax advantages to offering a qualified plan are:
Company contributions are deductible from the company's federal income taxes, to certain caps.No federal income tax is due on employee contributions, including those you make to your own account.Deductions may lower your federal income tax bracket, which reduces your overall income tax rate.
