Introduction to Qualified Retirement Plans (QRPs)

Introduction to Qualified Retirement Plans (QRPs)

The Schwab Qualified Retirement Plans (QRPs)/Keogh consists of three different account types: a money purchase plan, a profit-sharing plan, and a paired plan. These plans allow for large annual contributions, making them appropriate for clients with high, stable incomes and few to no employees. The employer or plan administrator is responsible for all account administration.

Business owners can no longer establish new Schwab QRPs. However, Schwab still services and maintains existing plans. Schwab also allows employers to add new participants to their existing Schwab QRP.

Key information related to Schwab QRPs (for existing plan owners and participants):

Eligibility Employers may add eligible participants to existing Schwab QRPs to hold employer contributions.

Plan sponsors Tooltip  set participant eligibility based on an employee’s years of service, age, and hours worked. Before offering the plan, plan sponsors can:
  • Require employees to have zero, one, or two years of service with the company
  • Require employees to work anywhere from 0 to 1,000 hours in one year
  • Specify an age requirement of up to 21 years of age
Key features The Schwab QRP consists of these three different plans:
  • Money purchase plan—allows for the discipline of contributing a fixed, required percentage each year
  • Profit-sharing plan—provides flexible income contributions each year and allows employers to make discretionary contributions
  • Paired plan—combines the features of both plans
Plan rules can vary based on the plan document, however, they share these key features:
  • Pretax contributions—Contributions are generally made on a pretax basis.
  • Tax deferred growth—Investment earnings on contributions grow tax free while in the plan.
  • Vesting—If the plan provides for employer contributions, those amounts must vest (typically based on years of service) before the participant is entitled to the funds.
  • Creditor protection—In most cases, creditors are not able to access qualified retirement plan funds to satisfy outstanding debts.
Deadlines
  • Participants can open an account and contribute for the prior year as long as it is done before the employer’s tax filing deadline, plus extensions.
  • Employers can make plan contributions until their tax-filing deadline, plus extensions.
Contributions Schwab QRP is an employer-only contribution plan. Contributions made for the plan year (or up to the next year’s tax filing deadline) are subject to plan year contribution limits.
  • Money purchase annual contributions allowed
  • Profit sharing annual contributions not allowed
  • Paired annual contributions allowed for some money purchase plans
  • Schwab QRPs offer Social Security integration Tooltip , which permits enhanced contributions for higher paid employees

    Note: It is the business owner/plan administrator's responsibility to ensure the business has the earned income to make contributions and prove the source of funds if audited by the IRS. Schwab, as the custodian of the account, is not responsible to monitor source of funds.
Tax ramifications The maximum deductible contribution for both profit-sharing and money purchase plans is 25% of qualifying compensation annually. All investments grow tax-deferred until withdrawn.

For information about limitations, withdrawal penalties, distribution requirements, and more refer to the following table:

Additional features
  • Money market fund
  • Option level 0
  • Householding (optional)
  • Power of attorney Tooltip  
Roles and responsibilities
Investment advisor Service team Employer
Works with client to complete and submit necessary forms to the service team Opens the investment account Completes necessary forms
Answers client questions about the plan Answers ongoing questions about the investment account Makes all annual contributions
Manages investments in the account   Completes and files the appropriate IRS Form 5500 if applicable
    On a quarterly basis, provides periodic benefit statements to plan participants and to beneficiaries of deceased participants
Rollovers Participants who have changed jobs or who have retired can elect to rollover assets. QRP rollover guidelines include:
Rollover to: Rules
  • Traditional IRA
  • SEP-IRA
Account owner must track any after-tax contributions included in the rollover.
  • Another QRP
  • Individual 401(k)
Receiving plan has the option to accept or reject the rollover.
These distribution types are not eligible for a rollover:
  • Substantially equal periodic payments over a period of 10 years or more
  • Substantially equal periodic payments over life expectancy
  • Required minimum distributions (RMDs)
  • Hardship withdrawals

See How to roll over assets to a Schwab account for more information.

Conversions Qualified retirement plans, including 401(k)s and other qualified plans, can be converted via a direct rollover to a Roth IRA. To move assets from a qualified retirement plan to a Roth IRA, clients must do a direct rollover conversion of the assets to a Roth IRA.
Distributions

All distributions from a QRP are subject to the plan document and IRS requirements. See specific distribution information below.

Normal distributions:
Participants must experience a qualifying life event to receive penalty-free distributions. Qualifying life events can include retirement, employment termination, death, or disability.

Hardship withdrawals:
Certain rules apply when determining if the financial need is eligible. Advise your client to review the plan document and consult their tax advisor before requesting a hardship withdrawal.

Hardship withdrawals are subject to federal income tax. Withdrawal penalties may also apply unless an exception applies.

In-service withdrawals:

  • Money purchase plans permit in-service withdrawals when the participant reaches the plan’s retirement age; hardship withdrawals or plan loans not allowed.
  • Profit-sharing plans permit in-service withdrawals if participant is employed for at least five years and assets are vested more than two years; plan loans not allowed.

Required minimum distributions (RMDs):

  • Participants must begin taking RMDs annually, beginning the year in which the participant reaches the federal RMD age.
  • Participants who do not fulfill the annual distribution requirement, risk being assessed a 25% IRS penalty on the undistributed amount. If the distribution is corrected in a timely manner (within two years), the excise tax on the failure is further reduced to 10%.
    • The SECURE Act raised the federal RMD age from 72 to 73 beginning January 1, 2023, at which individuals must begin taking RMDs from their retirement accounts.
    • Important: The new law only applies to individuals who turn 72 after December 31, 2022. If an individual turned 701/2, in 2019, this new law does not apply. That individual must take an RMD in 2022, 2023, and beyond.
  • See Introduction to required minimum distributions (RMDs) for more information.
Withdrawal penalties The IRS will impose a 10% penalty on withdrawals, before age 59 1/2 without an applicable penalty exception. Those exceptions include:*
  • Termination of employment at or after age 55
  • Withdrawals due to disability or death
  • Non-reimbursed medical expenses exceeding 7.5% of adjusted gross income
  • A qualified birth or adoption distribution 

* Schwab does not determine if a distribution qualifies for an exception. Clients should consult with a tax advisor.

ERISA Schwab QRPs are Employee Retirement Income Security Act (ERISA) accounts and are governed by all ERISA guidelines and rules.
Beneficiaries Participants can assign beneficiaries when opening the plan. Once Schwab opens the account, participants should evaluate their beneficiary designations regularly.
Comparison chart Small Business Retirement Plans: Review this comparison of the different business retirement plans offered by Schwab.

The following is available to assist you:

How to open a qualified retirement plan (QRP)
Introduction to cash and cash investments
Introduction to individual 401(k) plans
Introduction to Retirement Plan Solutions
Introduction to tax reporting

Participants should consult with their tax advisor if they have any questions about tax implications.

Find forms, guidelines, and other tax information at irs.gov.

For more information, see: