A qualified plan refers to employer-sponsored retirement plans that satisfy requirements in the Internal Revenue Code for receiving tax-deferred treatment. Most retirement plans offered by employers qualify including defined contribution plans like 401k plans and defined benefit plans like pensions. For most qualified retirement plans, the employer and employee both can contribute to the plan and the plan can earn income without facing taxes. The employee will not pay taxes until withdrawing the income in retirement which can greatly increase the overall retirement benefit, and employers can deduct their contributions to the plan up to a certain amount. However, to receive this treatment, the plans must meet many requirements such as the employer making required legal filings, the plan being permanent, and the plan must only benefit employees. Further, qualified retirement plans come with limitations such as caps on contributions and minimum age requirements for retirement that will differ based on the type of plan. Also, individual retirement accounts also may receive tax-deferred treatment if they meet IRC requirements like IRAs, but qualified retirement plan as a term typically refers only to employer-sponsored plans.
[Last updated in May of 2022 by the Wex Definitions Team]