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 Setting
up and administering qualified plans is a complex,
laborious task best left to
those who specialize in such activity. There are numerous
rules regarding eligibility,
participation, the amount of contribution that can
be made or benefit that can be paid.
However, a life insurance agent who understands the
basic aspects of the various
qualified plans and how one or the other might meet
the needs of a business client
can do very well for himself or herself by selling
qualified plans.
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Qualified and Non
qualified Retirement Plans
People use many means to plan for retirement. Recognizing
the necessity for
working people to provide for their retirements, the government
offers some
significant tax benefits for certain kinds of retirement
plans. These are called
qualified retirement plans, and this chapter focuses on the
plans that apply to
businesses and their employees.
In order to be qualified, a retirement
plan must meet certain requirements of
the Internal Revenue Code with respect to participation,
funding, benefits,
vesting, and so forth. When qualified, a retirement plan
offers significant tax
advantages. If a plan qualifies, contributions made on behalf
of participants
to fund their retirement benefits are
- Tax-deductible to the business
- Generally not currently taxable
to the employee
- Allowed to accumulate in the
plan on a tax-deferred basis
- Taxed at the time of distribution
to retirees under special, advantageous
rules
Within the qualified category
are two kinds of overall plans:
- A defined benefit plan offers
benefits that are determined using a
definite formula. Contributions to defined benefit plans
must be made in amounts that fund the benefits promised
to plan participants.
- A defined contribution plan
focuses attention on the
contributions made to the
plan as opposed to the benefits
the plan will pay out. At
retirement, the amount in
the plan participant’s
account is totaled and a
distribution is made.
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