What are the benefits of qualified retirement plans?
The advantage as an employee is that your contributions in a qualified plan are made with pretax dollars from your paycheck. You are not only investing your money for the future, but you are also using a percentage of money that otherwise would have gone to Uncle Sam. Your pretax dollars grow tax-deferred—you don’t have to pay any income taxes on your contributions or your investment gains until funds are withdrawn from the plan at retirement. This is also true of other retirement-savings vehicles, such as a traditional IRA. Another advantage is that many employers match part or all of employee contributions. Qualified plans also qualify for special taxation rules such as ten-year averaging and capital-gains tax. The most comforting feature of a qualified plan is that it is protected against claims by your employer’s creditors. Your money is held in trust for you and should be relatively safe.