The following are some of the
most common types of defined
contribution plans. For a more
detailed description and comparison
of some of these plans, visit the
website www.dol.gov/ebsa and go to
“Retirement Savings,” then follow the
prompt to the Small Business Advisor
under “For Employers.”
401(k) Plan. This is the most popular
of the defined contribution plans and
is most commonly offered by larger
employers. Employers often match
employee contributions.
403(b) Plan. Think of this as a 401(k)
plan for employees of school systems
and certain nonprofit organizations.
Investments are made in tax-
sheltered annuities or mutual funds.
What To Do If You Can’t Join an
SIMPLE IRA. The Savings Incentive Match Plan for
Employer-Based Plan
Employees of Small Employers is a simpler type of
You may not be able to join an employer-based
employer-based retirement plan. There is also a 401(k) retirement plan because you are not eligible or because version of the SIMPLE.
the employer doesn’t offer one. Fortunately, there
Profit Sharing Plan. The employer shares company
are steps you can still take to build your retirement
profits with employees, usually based on the level of
strength.
each employee’s wages.
Take a job with a plan. If two jobs offer similar pay ESOP. Employee stock ownership plans are similar
and working conditions, the job that offers retirement
to profit sharing plans, except that an ESOP must
benefits may be the better choice.
invest primarily in company stock. Under an ESOP, the
Start your own plan. If you can’t join a company plan, employees share in the ownership of the company.
you can save on your own.
SEP. Simplified employee pension plans are used by
You can’t put away as much on a tax-deferred
both small employers and the self-employed.
basis, and you won’t have an employer match. Still, you
Other retirement plans you may want to learn
can build a healthy nest egg if you work at it.
more about include 457 plans, which cover state and
local government workers, and the Federal Thrift
Savings Plan, which covers federal employees. If you are
eligible, you may also want to open a Roth IRA.
U.S. Department of Labor Employee Benefits Security Administration 21
SAVINGS FITNESS A GUIDE TO YOUR MONEY AND YOUR FINANCIAL FUTURE
Open an IRA. You can put up to $5,500 a year into an the way, you don’t have to put in the full amount; you
individual retirement account on a tax-deductible
can put in less.) With a traditional IRA, you delay
basis if your spouse isn’t covered by a retirement plan
income taxes on what you put in and on the earnings
at work, or as long as your combined incomes aren’t
until you withdraw the money. With a Roth IRA, the
too high. Persons who are 50 or older can contribute
money you put in is already taxed, but you won’t
an additional $1,000. You also can put the same
ever pay income taxes on the earnings as long as the
amount tax-deferred into an IRA for a nonworking
account is open at least 5 years.
spouse if you file your income tax return jointly. (By