Question

Briefly describe the principal tax advantages of qualified pension plans.

Answer 1

There are various advantages of qualified pension plans. Firstly the employer contributions to the qualified pension plans is a tax-deductible business expense provided the contribution is within the prescribed limits. For the employee the investment income on the plan is tax deferred which means that tax is paid on the income at the time of withdrawal. At the time of employer contribution to the fund, the employees are not taxed. This gives a major advantage to the employee because the employee may be in a lower tax bracket when he receives the distributions.