Many of the employers offer attractive retirement packages to the employees today. If you are offered one, make sure you get into it after considering your circumstances and the plan put forth by the employer. Some of the more popular plans are mentioned below:

401(k) The 401(k), 403(b) and 457 plans derive their names from the Internal Revenue Code sections. While 403(b) plans are similar to 401(k), only tax-exempt organizations are eligible for the same. 457 plans, on the other hand, are for governmental entities. The employees are given the chance to defer tax on a portion of their income by contributing the amount to a fund for retirement set under the plan. Employers providing 401(k) or 403(b) plans may hand over the option of a Roth version.

The annual contributions to the above plans are more than that for the IRAs, besides giving the employees aged fifty or above to make catch-up contributions to the fund. A lucky employee will be offered with an equal portion similar to what he contributes by his employer.

The 401(k), 403(b) and 457 plans are expected to abide to the minimum distribution rules similar to the ones applicable with the IRA. The difference between the two is under certain situations, you may make contributions after you turn 701/2.

Solo 401(k) plans An individual who is self-employed can take advantage of the solo 401(k) plans. What was earlier denied is now offered by merging the features of 401(k) with other plans to assist in saving more for retirement.

Under the plan, the individual can contribute an amount equal to the 401(k) limit along with the catch-up amount, if any, besides an amount to a SEP IRA. However, as the plan is meant for the self-employed people who do not have employees under them, having people under you call for the adoption of the traditional 401(k) plan or others. The self-employed individual have also to ensure the supply of an amount essential to make the contribution, or else the operational and other cost of creating the plan will be lost. But in spite of the disadvantages, the plan is worth considering.

SIMPLE IRA: If you have less than hundred employees, go for a SIMPLE (Savings Incentive Match Plans for Employees) IRA. Under the plan, the employer agrees to make an equal contribution to the fund equal to that of the employee, which is generally limited to 3%. You can also agree to make a flat 2% contribution irrespective of the amount offered by the employee.

The requirements imposed by the law on the contribution ceiling and the catch-up amount are lower than for 401(k) plans. Though the SIMPLE IRA rules and SIMPLE 401(k) plan rules are similar, the minor differences make the SIMPLE IRA preferable. For example, while limited testing is necessary for SIMPLE 401(k), discrimination testing is not called for in SIMPLE IRAs.

Defined contribution plans: It comprises of the money purchase plans and the profit sharing plans that have differing restrictions on the contributions that can be made by the employer and the employee. Where the employer plans are merged with that of the employee, the limit to the annual contribution to the fund by the employee excluding the catch-up amount, if any, brings down what the employer can offer to the plan. .

A defined contribution plan that is ideally suited for the owners of the closely-held business entities is the ESOP.

Defined benefit plan: Though not popular these days, under this traditional method the employees are prevented from making contributions to the retirement fund. The whole investment risk is borne by the employer who assures to pay the annual retirement benefit to the employee. While the defined benefit plan funds are often pooled, the defined contribution plan funds are segregated by employees.

A well-structured defined benefit plan is expensive to be established, but allows the business entities to make a significant contribution to the fund than the established defined contribution maximum. The cost is on account of the fact that the fund is driven by the amount required to produce the benefit expected. Though it is vital to know the returns that can be expected in the future, it is even more critical to recognize the factors that influence your retirement benefits. Remaining knowledgeable about the decision is necessary to identify a retirement plan that can reap maximum benefit.

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