Wealth &
Protection Planning

Qualified Benefit Plans

There are two types of qualified benefit plans: Defined Benefit Plans and Defined Contribution Plans. 

Defined Benefit Plans
  •  A defined benefit plan is a qualified retirement account that contractually agrees to pay a specified benefit at the plan holder's age of retirement.  This type of qualified plan clearly defines the amount of retirement income to be paid to the account owner. 
  • Defined benefit plans usually pay out benefits in the form of a life annuity.  This annuity generally begins at the plan's stated retirement age and ends when the account holder dies. 
Defined Contribution Plans
  •  A defined contribution plan is a tax-deferred savings plan that people fund with their own money (rather than an employer's) and use to save for retirement.  It is the opposite of a defined benefit plan, which is typically a pension plan funded by the employer or an entity other than the person who will directly benefit from the plan. 
  • A 401(k) plan is the most common type of defined contribution plan, though there are other types of similar plans for certain types of employees. 
  • In general, employees contribute a portion of their pay on a pre-tax basis in their own accounts.  Employees choose how much they want to save per year, up to the maximum allowed by the plan.  In many cases, employers will match employee contributions up to a specified percentage and in some cases, employers may offer additional contributions as part of an incentive package. 
  • The defined contribution plan then invests the funds in a securities portfolio.  The composition of the portfolio may vary depending on how the company manages its plan and the level of risk with which the employee is comfortable.  In most cases, employees may choose from a variety of portfolio allocations. 
  • At retirement age, the employee can begin withdrawing the funds.  Should the employee choose or need to withdraw funds prior to retirement age, he may incur certain penalties specified in the plan. 

Contact a STRIVE Wealth Advisor for more information about qualified benefit plans. 

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