Which of the following statements is true regarding employer-provided qualified retirement plans?

• A. Contributions made by employers to qualified retirement plans are generally tax-deductible for the employer.
• B. Qualified retirement plans do not have to meet any IRS requirements to receive favorable tax treatment.
• C. Employees are taxed on employer contributions to qualified retirement plans in the year the contributions are made.
• D. Distributions from qualified retirement plans are always tax-free to employees.

Answer: (A)

Verified step by step guidance

1. Understand the concept of employer-provided qualified retirement plans. These are retirement savings plans established by employers that meet specific requirements set by the IRS to receive favorable tax treatment.
2. Review the tax implications for employers. Contributions made by employers to qualified retirement plans are generally tax-deductible for the employer, meaning they can reduce the employer's taxable income.
3. Examine the IRS requirements. Qualified retirement plans must meet specific IRS requirements, such as nondiscrimination rules and contribution limits, to receive favorable tax treatment.
4. Analyze the tax treatment for employees. Employees are not taxed on employer contributions to qualified retirement plans in the year the contributions are made. Instead, taxes are deferred until distributions are taken from the plan.
5. Consider the tax treatment of distributions. Distributions from qualified retirement plans are generally taxable to employees as ordinary income, unless the distribution qualifies for a specific tax exemption (e.g., Roth accounts).