Discuss the tax consequences of qualified pension or profit sharing plan to the employee, the employer, and the trust. (source needed) Solution Qualified retirement plans give employers a tax break for the contributions that they make for their employees. Qualified plans that allow employees to defer a portion of their salaries into the plan also reduce employees\' present income tax liability by reducing taxable income. These planshelp employers to attract and retain good employees. Qualified pans come in two types:defined benefit and defined contribution. Defined benefit plans give employees a guaranteed payout, and place the risk on the employer to save and invest appropriately to meet plan liabilities. Under defined contribution plans, the amount employees receive on retirement depends on how well they save and invest on their own during their working years A 401 ( k) plan is an example of a defined contribution plan. Whether the plan makes use of a trust or is funded by employer purchased annuities, an employee is generally not taxed until the amounts are distributed or made available to him. To prohibit plan participants from using plans as a mechanism for passing wealth on to the next generation, rather than as a source of income during retirement, Internal Revenue Service regulations require plan participants to take required minimum distributions from qualified plans once they reach the required beginning date described in the regulations. The trust must be valid under State Law and a ll beneficiaries of the trust must be individuals, and the trust must be irrevocable by its terms upon the participant\'s death. .