Non-tax Benefits of Qualified Plans
There are many non-tax benefits of qualified plans. One of the biggest non-tax benefits of qualified plans is that contributions today can help meet future goals of financial security. Social security cannot be solely relied upon to meet retirement goals. There is a need for an individual to provide for his or her own retirement to reduce the possibility of facing an income gap. Qualified plans offer automatic deductions from payroll, which makes it much easier to save money since it is managed for you.
Non tax-benefits of qualified plans consist of the four Rs discussed: recruit, reward, retain and retire. Qualified plans are one of the biggest benefits to employees. They create and contribute to positive employee relations. The plans attract and retain quality employees, which reduces the turnover rate. Employee morale is increased when employees know that their retirement is secure.
Qualified plans also offer special forms of protection. Qualified plans are protected from creditors in the ERISA established trust. Even if a garnishment is put on an employee’s wages, creditors can never touch that employee’s portion of funds in the qualified plan. The trustee of the trust is held to higher fiduciary standards than his or her own. This means that there is there is no better protection than to have your future retirement fund stored in a trust. Qualified plans also serve as a way to shelter your money from the government until a later date. If a qualified plan has a participant that is near retirement age, special catch up contributions can be made. This is beneficial because of the limitations placed on the amount of annual contributions. Another benefit is that qualified plans can be used when it comes to estate planning. A qualified plan can be left to a beneficiary or a surviving spouse.
Defined benefit and defined contribution plans both have non-tax benefits. Defined benefit plans provide for a specific monthly benefit at retirement, which provides added security. A plans trustee makes investment decisions and the employer bears the risk to ensure the funds are available. However, defined contribution plans do not offer a specific promised benefit at retirement but they allow for the employee to decide the amount and how contributions are invested. Certain plans are more portable in the case of an employee switching jobs. Depending upon the needs of the employee, both types could offer substantial benefits.
In recent news, it could be said that qualified plans offer better benefits such as those in employer matched plans than the newly available myRA plan. While the myRA plan may be a great option for some, it has many limitations. A myRA plan can only be kept for a total of 30 years or until $15,000 is saved. After either applies, the myRA plan is rolled over into a Roth IRA. Savings are only invested in Treasury Bonds that offer very small returns and participation may be limited by ones income. When compared to qualified plans, the long run benefits are far greater than the ones offered through the myRA plan.
Question: Are there any other non-tax benefits of qualified plans you can think of? What are your thoughts regarding the myRA plan compared to qualified plans? Are there any other developments or recent news articles about the non-tax benefits of qualified plans?