A qualified retirement plan is one of the best, and few remaining, tax shelters available. The Company sponsoring the plan is allowed to take a current tax deduction for its contributions to the plan; the employee pays no current tax on money contributed for their benefit; earnings from investments in the plan accumulate tax-free; and distributions from the plan may be afforded favorable income tax treatment.
A qualified retirement plan is especially attractive to working owners of closely held corporations and to self-employed individuals. Their long-term service, and corresponding contributions to the plan, gives them the opportunity to accumulate large sums of money though the tax-free build-up of capital. Although benefits must also be provided for other employees, the owner generally receives a much larger benefit than the other employees.