Business and Personal Finance Dictionary

# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z 

• QUALIFIED RETIREMENT PLAN
  
  Qualified retirement plans are employer-sponsored, tax-deferred plans to which you and your employer both contribute, or to which you (but not your employer) contribute. Most qualified plans have a limit, or cap, on how much you and your employer can put into the account each year. When you withdraw, you owe federal income tax on the amount of the withdrawal at your ordinary tax rate. And, if you withdraw from any of these plans before you reach age 59 1/2, you'll owe a penalty as well as the income tax that's due, unless you qualify for one of the exceptions spelled out in the federal income tax code. (However, you may be able to borrow from some plans without penalty.) To be classified as qualified, a plan must provide for all eligible employees equivalently. That means the plan can't treat highly paid employees more generously than it does the least well paid. In contrast, a nonqualified plan may be available to some employees and not others. Nonqualified contributions are made with posttax dollars, although any earnings in the plan accumulate on a tax-deferred basis. While you must postpone withdrawals to age 59 1/2 to avoid penalty, the federal government does not require you to begin withdrawals at age 70 1/2.
  
  Back