Question

Retirement benefits: who is entitled to them, must they be taken, are there potential tax implications.?

Answer 1

Retirement benefit is a financial arrangement designed to replace employment income upon retirement. These plans may be set up by employers, insurance companies, trade unions, the government, or other institutions. Congress has expressed a desire to encourage responsible retirement planning by granting favorable tax treatment to a wide variety of plans. Federal tax aspects of retirement plans in the United States are based on provisions of the Internal Revenue Code and the plans are regulated by the Department of Labor under the provisions of the Employee Retirement Income Security Act (ERISA).

Through rhis they will get some tax benefits, thus it is better to receiv the retirement benefits, like Gratuity, VRS funds, etc

Most retirement plans (the exception being most non qualified plans) offer significant tax advantages. Most commonly the money contributed to the account is not taxed as income to the employee at the time of the contribution. In the case of employer provided plans, however, the employer is able to receive a tax deduction for the amount contributed as if it were regular employee compensation. This is known as pre-tax contributions, and the amounts allowed to be contributed vary significantly among various plan types. The other significant advantage is that the assets in the plan are allowed to grow through investing without the taxpayer being taxed on the annual growth year by year. Once the money is withdrawn it is taxed fully as income for the year of the withdrawal. The restrictions are designed to make sure that highly compensated employees do not gain too much tax advantage at the expense of lesser paid employees.