Retirement Plan Types

There are two categories of tax-advantaged Retirement Plans - Employer Sponsored and Individual Retirement Accounts (IRA).

Employer Sponsored

• 401(k) Plan

• 457 Plan

• 403(b) Plan

• SIMPLE Plan

• Keogh Plan

• Self-Employed Pension (SEP) Plan

Individual Retirement Accounts (IRA)

• IRAs (Deductible, Non-deductible, Roth)

401(k) Plan

Used by most employers, including many non-profits. A 401(k) is a Retirement Plan made available by a company to its employees, featuring tax-deferred contributions and growth. Tax-deferred investments allow deferral of income tax on contributions and taxes on investment growth. Taxes are not paid until funds are withdrawn during retirement. The plan may also include matching contributions by the company.

457 Plan

Used by state and federal governments and agencies. A 457 plan is similar to a 401(k) plan, except there are never employer matching contributions. Participants can defer some of their annual income (up to an annual limit), and contributions and earnings are tax-deferred until withdrawal. Distributions start at retirement age but participants can also take distributions if they change jobs or in certain emergencies. Participants can choose to take distributions as a lump sum, annual installments or as an annuity.

403(b) Plan

Used by non-profit organizations such as schools, hospitals, religious entities. A Retirement Plan similar to a 401(k) plan. However, plan sponsors are only able to offer fixed or variable annuities as investment options. Proceeds are converted to an annuity upon retirement. These plans are also referred to as tax-deferred annuities.

SIMPLE Plan

Used by smaller companies. Savings Incentive Match Plans for Employees (SIMPLE) Retirement Plans are attractive for employers because it avoids some of the administrative fees and paperwork of plans such as 401(k)s. The employer has the option of matching a certain portion of the employee's deferrals or making non-elective contributions to all eligible employees (an annual limit applies in both cases). A minimum compensation eligibility requirement exists for employees who want to join this plan, and employees cannot establish any other qualified Retirement Plans at the same time.

Keogh Plan

Used by self-employed individuals and unincorporated businesses. A tax-deferred qualified Retirement Plan also called self-employed pension.

Self-Employed Pension (SEP) Plan

A retirement program for self-employed people or owners of companies with less than 25 employees, allowing them to defer taxes on investments intended for retirement. This plan allows employers to contribute on behalf of eligible employees, and all contributions are tax-deductible as a business expense and can be integrated with Social Security contributions. In addition, there is no minimum contribution requirement.

IRAs (Deductible, Non-deductible, Roth)

Used by individuals. An Individual Retirement Account (IRA) is a tax-deferred retirement accounts for an individual that permits an individual to set aside up to $2,000 per year. Earnings are tax-deferred until withdrawals begin at age 59 1/2 or later (or earlier, with a 10% penalty). IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. A participant is able to roll over a distribution to another IRA or withdraw funds using a special schedule of early payments made over the participant's life expectancy.