An employer-sponsored, or company-sponsored, retirement plan is a good way to retain quality employees, at the same time providing employees with a convenient way to invest for retirement. Employer-sponsored retirement plans are useful for the employees because it provides a convenient way to invest for retirement. A company offering company-sponsored retirement plan also benefits because contributions made become tax-deferred. Employer-sponsored retirement plan is also known as tax-deferred retirement plan.
Company-sponsored plans offer the convenience of automatic salary deductions and the flexibility of being able to change contribution amounts and investment options at any time. Any earnings grow tax-deferred until funds are withdrawn. Some offer matching contributions up to a certain percentage of the contribution amount.
Types of Tax-Deferred Retirement Plans
There are two types of employer-sponsored retirement plans: qualified and non-qualified. Qualified plans meet the requirements of Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA). These plans offer several tax benefits to company and employee: they allow employers to deduct annual allowable contributions for each participant; contributions and earnings on those contributions are tax-deferred until withdrawn for each participant; and some of the taxes can be tax-deferred even further through a transfer into a different type of IRA. Non-qualified plans are those plans that either do not meet the IRS Code or the ERISA requirements.
Examples of Company-Sponsored Retirement Plans
Some examples of company-sponsored plans are 401k contribution plan and some forms of IRAs. In a 401k plan, employees contribute a portion of their pretax salary to a tax-deferred retirement plan.
A solo 401k is an option for self-employed. Solo 401k offers many of the same advantages of a traditional 401k, including flexible tax-deferred contributions and the ability to take loans. Setup costs in 401k are low and cover a beneficiary, usually the spouse. 401k plans, the most common retirement plan, serve small to large profit or non-profit company, with employer contributions permitted.