Benefits of a Qualified Plan

To the Employer/Plan Sponsor

Employer contributions are tax deductible.
Assets in the plan grow tax-free.
A retirement plan can attract and retain good employees.
The plan can be structured to accumulate significant benefits for selected employees.
Businesses may receive tax credits and other incentives for starting a plan. This tax credit helps small businesses offset the costs of setting up and administering a new qualified employer plan and educating employees about it. The credit is 50% of these costs, with a maximum amount of $500 per year. After the first year the credit is claimed, it may be claimed again only in the following two years. To qualify, a business must have had no more than 100 employees who received at least $5,000 in pay during the preceding year. The plan must include at least one non-highly compensated employee.

To the Employee/Plan Participant

Tax on employee contributions is deferred until distributed.
Investment gains in the plan are not taxed until distributed.
Contributions can usually be made through payroll deductions.
Provides a way to accumulate substantial retirement income.
Plan benefits are protected under ERISA from creditors.
Some 401(k) savers may also be eligible for an additional tax credit, simply for saving. http://www.irs.gov/taxtopics/tc610.html