Plan assets are financial assets held in retirement plans to generate income for funding the plan. Examples include stocks, bonds, and mutual funds. Investment managers oversee asset management, selecting assets based on stable and reliable returns. Plan assets receive special tax treatment and there may be restrictions on what can be considered a plan asset.
A plan asset is a financial asset held in a retirement plan and used to generate income to fund the plan. Plan assets are generally of a blended nature in order to maintain a diverse retirement plan and limit exposure to loss, especially when individuals are close to retirement and have access to plan income. Typically, an investment manager oversees asset management, applying knowledge of the financial industry to decisions about the movement and use of assets.
Examples of plan assets may include stocks, bonds, and mutual fund investments. Assets are selected on the basis of returning stable and reliable investments. In the case of an individual retirement plan, people tend to choose riskier investments early on to build capital, switching to lower-risk investments with smaller returns as they get closer to retirement. This ensures funds are available when needed, and provides room to rebuild retirement savings if a loss is incurred on a plan asset early in someone’s career.
Companies that offer retirement benefits allow qualified employees to purchase the plan and can match employee contributions. The investment manager uses the funds pooled in the plan to select good plan assets with the goal of maintaining consistent returns. Employees currently retiring must receive funds from the plan, while employees who are currently working pay with the expectation of receiving benefits when their working lives end. This requires a delicate balance on the part of the investment manager when making plan asset purchases, especially if the number of retirees is expected to increase.
A plan asset generally receives special tax treatment. While it generates income and generates profit, this is being used for a specific purpose, retirement funding, and tax authorities may reduce or eliminate tax liabilities associated with such assets. This provides an incentive to save for retirement, reducing the burden on government retirement programs by allowing people to plan their own retirements.
When establishing a retirement plan, there may be restrictions on what can be considered a plan asset, and there are also individual investment limits. Investing in non-qualifying assets or contributing over the limit can create tax liabilities. Accountants have more information about retirement planning and current regulations and can help people with the process of keeping tax burdens low as they prepare for retirement.
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