Defined benefit retirement plan

Q: What is a defined benefit retirement plan?  

Qualified plans meet requirements of the Internal Revenue Code and receive special tax treatment under the Code; non-qualified plans do not. In qualified plans, the employer may take current tax deductions for contributions to the plans and employees are not subject to income taxes on contributions until they withdraw the funds at a later date. Non-qualified plans do not meet Code requirements, typically because they are offered to a discriminatory group of employees. Under non-qualified plans, the general tax rules apply under which employer deductions are deferred until the tax year in which employees must pay income taxes on their benefits. Therefore, the employer tax deduction is deferred on the employee’s income until a future date when the employee’s income is recognized.

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