What are the qualified retirement plan eligibility requirements?


Qualified retirement plans are plans that qualify for receiving favorable tax treatment. In order for retirement plans to be "qualified", they have to meet certain requirements imposed by the Internal Revenue Service (IRS), including minimum coverage and minimum age and period of service.

Tax Advantages of Qualified Retirement Plans

Once an employer's retirement plan has been granted the status "qualified", participants can enjoy considerably favorable income tax treatment, especially if they stay on the program for a substantial number of years. Here is a list of the income tax advantages that qualified retirement plans offer to their participants:

  • The contributions made to the qualified retirement plan by the employer are tax-deductible and they can count as business expenses if they are not in excess of certain amount. 
  • Employees do not owe federal income tax on the employer's contributions into the retirement plan.
  • The invested returns on the retirement plan funds build up on a tax-deferred basis.
  • It is not until the employee retires and receives distributions from the plan, that the pension benefits are taxed.

Qualified Retirement Plan Eligibility Requirements

According to the minimum coverage requirements, in order for a retirement plan to be eligible for receiving favorable tax treatment employers have to provide evidence that all employees are equally welcome to participate in the plan, regardless of their financial status.

There are three tests that help determine that. According to the percentage test, for instance, at least 70 percent of the non-highly compensated employees need to be covered under the retirement plan.

A minimum age and service requirement needs to be satisfied for workers to participate in their employers' qualified retirement plans. Under federal law, all workers are eligible to participate in corporate retirement plans provided that they have reached age 21 and have successfully been employed by the same company for at least a year.

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