Why Adopt 401(k) and Other Plans?

A retirement plan is an employer-sponsored program that allows employees to accumulate funds that will be available to them when they retire. A "qualified" retirement plan is a plan that meets the requirements of Internal Revenue Code Section 401(a) and is thus eligible for favorable tax treatment.

A qualified retirement plan is one of the best tax shelters available, for both the sponsoring employer and the participating employees. Here's why:

Benefits from the employer's perspective:

• The employer is allowed a current income tax deduction for its contributions.
• A good retirement plan can help with successful recruitment and retention of valuable employees. This is especially true of 401(k) plans.

Benefits from the employee's perspective:

• The employee is not taxed on contributions made for his or her benefits until a distribution is made.
• Earnings from plan investments accumulate tax-deferred and distributions may receive favorable income tax treatment.