What are the basic tax advantages of a qualified plan?
The sponsoring company is allowed an immediate tax deduction for the amount contributed to the plan for a particular year. Participants pay no current income tax on amounts contributed by the company on their behalf. Earnings on the plan are tax-exempt permitting the tax-free accumulation of income and gains on investments. Income taxes on a partial or lump sum distribution may be deferred by rolling over the distribution to an individual retirement account (IRA) or to another qualified plan. Income taxes on a partial or lump-sum distribution to a deceased participant s spouse may be deferred by rolling over the distribution to an IRA. Installment or annuity payments are taxed only when they are received. Must a company be incorporated to have a qualified plan? No. The benefits of a qualified plan are available in incorporated and unincorporated businesses alike. Sole proprietorships and partnerships can have comparable plans, as well. What is the Employee Retirement Income Security Ac
