Retirement Planning at a Glance
Retirement planning is the process of planning for one's income needs during retirement. Usually, there are three main sources of retirement income— Social Security, employer qualified retirement plan benefits, and personal savings and investments.
Retirement planning consists of marshaling the resources from all of these to assure a financially rewarding retirement.
The Retirement Planning section focuses on employer-sponsored retirement plans and other related subjects. This includes an examination of— qualified retirement plans in all their manifold varieties—defined benefit plans, defined contribution plans of the money purchase pension and profit sharing types, target benefit plans, Keogh plans for the self-employed, and section 401(k) plans;
simplified employee pension plans (SEPs); SIMPLE retirement plans; individual retirement accounts or annuities (IRAs), including Roth IRAs; Section 403(b) plans, also called tax-sheltered annuities or TSAs; rollovers, direct rollovers, and direct plan-to-plan transfers; Section 457 deferred compensation plans for certain employees in the government and not-for-profit sectors of the economy; and pension income supplemental life insurance.
Qualified Retirement Plans
The Keystone of Retirement Planning
Retirement is sometimes referred to as the "golden years." However, retirement is not very golden for those without enough money to retire comfortably. Longer life spans and growing concern over the future of Social Security retirement benefits are just two of the reasons why your clients may be interested in sound retirement planning. For many Americans, qualified retirement plans are the keystone of retirement planning.
Click here to see a chart that summarizes the contribution and benefit limits for qualified retirement plans.
Click here to jump to the section on Nonqualified Deferred Compensation Arrangements.
Beyond Social Security
The Social Security system provides significant retirement benefits for the vast majority of American workers. However, this program was never intended to be an individual's sole means of support after the working years have ended. Recognizing the importance of retirement planning, the U.S. government has provided tax incentives for the creation of employer-sponsored retirement plans that qualify for favorable federal income tax treatment—hence the name qualified retirement plans.
Requirements of Qualified Retirement Plans
Before a plan can qualify for tax-favored treatment, the employer must:
establish the plan in writing
communicate it to the employees
establish it for the exclusive benefit of employees and their beneficiaries
make it permanent
prohibit the assignment or alienation of benefits
meet certain minimum participation (for defined benefit plans only as of January 1, 1997), coverage, vesting and funding standards
not discriminate in favor of highly compensated employees
adhere to rules regarding contribution and benefit limits.
Certain qualified retirement plans also must provide for a qualified joint-and-survivor annuity as a benefit option for married plan participants.
Let's examine a few of these areas in more detail.