What is a qualified retirement plan?

A qualified retirement plan is one that meets the requirements set forth by the Internal Revenue Code (IRC), specifically under section 401(a), which allows the plan to receive favorable tax treatment. This tax treatment includes the ability for contributions to the plan to be tax-deferred, meaning that both employee and employer contributions are not taxed until they are withdrawn, usually during retirement.

The distinction of being a "qualified" plan also typically encompasses other regulatory requirements, such as nondiscrimination rules, vesting schedules, and limits on contributions, ensuring that these plans are accessible to a broad group of employees rather than favoring highly compensated employees disproportionately. This regulatory framework is designed to encourage savings for retirement while offering tax advantages to both employers and employees.

In contrast, options indicating no employer contributions, fixed benefits regardless of plan structure, or restrictions to employee-only contributions do not align with the comprehensive criteria that qualify a retirement plan under IRC §401(a).