Qualified retirement plans are divided into two major categories; defined contribution and defined benefit. In order for “qualified” retirement plan contributions and earnings to “qualify” for favorable tax treatment, the retirement plan must comply with Employee Retirement Income Security Act of 1974 (ERISA) and Internal Revenue Service rules and regulations. Defined contribution retirement plans define the “contribution” amounts deposited into qualified retirement plan accounts with investor’s bearing the risk of investment returns. Defined benefit retirement plans define the “benefits” received from the qualified pension plan, based on a salary and years of service formula, without regards to investment returns. The vast majority of qualified retirement plans are categorized as defined contribution plans.
A financial advisor can provide pension plan participants with valuable guidance concerning their defined contribution retirement plans in three areas. First, they can determine what voluntary contributions participants should make, in addition to employer contributions, to meet their retirement income goals. Second, they can provide advice concerning the suitable allocation of investment funds across the various investment options, over time. Third, they can advise clients concerning the taxation of withdrawals from the qualified pension plan, including premature withdrawals.
The various types of qualified retirement plans for individual, self-employed or participant in employer-sponsored plans include:
- IRA Accounts;
- Roth IRA Accounts;
- FRS Investment Plans;
- FERS Retirement Plans;
- 457 Deferred Compensation Plan;
- TSA (403b) Account;
- Simple Plans;
- Simplified Employee Pension Plans (SEPPs);
- Keogh Plans;
- 401(k) Plans;
- Self-Directed Brokerage Account (SDBA) Option; and
- Defined Benefit Plans.
A financial advisor can review your current holdings and determine the appropriate investment allocations in your retirement plan based on an investment policy statement designed to reach your True North.
