With the construction industry currently experiencing a positive economic cycle, it’s critical for contractors to start (or continue) setting money aside for retirement. A number of retirement plan options exist, each with various benefits and tax savings.

Let’s consider the basic requirements of a qualified retirement plan along with common plan types.

Author’s Note: This article is a brief overview of plan requirements; the impact of tax laws and ERISA requirements are beyond the scope of this article, which is updated with the 2017 thresholds. As always, discuss your specific circumstances with your tax and/or investment advisors before implementation.

What Is a Qualified Plan?

A qualified plan generally refers to whether or not it qualifies under the IRC. Key benefits to a qualified plan include favorable tax treatment to employees and the timing of the deduction for the contractor.

For tax purposes, ensuring a plan is qualified is valuable because: 1) a deduction is available for amounts contributed to the plan; and 2) the earnings on those contributions can be accumulated tax-free until later distributed.