Retirement Plan Types

401(k) plan: A plan offered by an employer that lets employees make contributions to a retirement savings plan on a pre-tax basis, sometimes fully or partially matching these contributions.

403(b) plan: Similar to the 401(k) plan, but generally offered by nonprofit organizations instead of for-profit businesses. Allows employee contributions to grow on a tax-deferred basis until they are withdrawn. At withdrawal, the funds are subject to tax, like ordinary income.

457 Plan: Named in reference to the portion of the Internal Revenue Code that defines its basic rules, the 457 is a tax-exempt deferred compensation program provided to employees in state and federal governments and agencies. While similar to the 401(k) plan, the 457 plan never receives matching contributions from the employer, nor does the IRS consider it to be a qualified retirement plan.

Defined-Benefit Plan: An employer-sponsored retirement plan where employee benefits are sorted out based on a formula using factors such as salary history and duration of employment. Investment risk and portfolio management are entirely under the control of the company. There are also restrictions on when and how you can withdraw these funds without penalties. It is also known as “qualified benefit plan” or “non-qualified benefit plan.”

Money-Purchase Pension Plan: A pension plan to which employers and employees make contributions based on a percentage of annual earnings, according to the terms of the plan. Upon retirement, the total pool of capital in the member's account can be used to purchase a lifetime annuity. The amount in each money-purchase plan member's account will differ from one member to the next, depending on the level of contributions and investment return earned on such contributions. It is also known as a defined contribution plan.

IRA Payroll Deduction Plan: An IRA plan in which an employer deducts a specified amount from an employee's pay and puts the funds toward their investment account. In most situations, employees enter into payroll deduction plans on a voluntary basis.

Individual Retirement Account (IRA): A retirement program that permits individuals who have earned income to save part of that income in a tax-deferred savings plan. IRAs can be created and funded any time between the first day of the current year up to and including the date on which individual income tax returns are due, usually April 15 of the following year.

Profit-Sharing Plan: A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings. It is also known as “deferred profit-sharing plan” or “DPSP.”

Roth IRA: While similar to a traditional IRA (Individual Retirement Account), the Roth IRA's contributions are not deductible. Account distributions currently may be obtained free of federal income tax if certain conditions are met.

Salary Reduction Simplified Employee Pension Plan (SARSEP): A plan offered by small companies – typically those with fewer than 25 employees – that allows employees to make pretax contributions to their Individual Retirement Accounts (IRAs) through salary reduction.

Savings Incentive Match Plan For Employees Of Small Employers (SIMPLE): A retirement plan that may be established by employers, including self-employed individuals. The employer is allowed a tax deduction for contributions made to the SIMPLE. The employer makes either matching or non-elective contributions to each eligible employee's SIMPLE IRA and employees may make salary deferral contributions.

Simplified Employee Pension (SEP): A type of retirement plan in which an IRA (Individual Retirement Account) is used to hold contributions; a simpler alternative to a 401(k) or profit-sharing plan.

Single-Employer Plan: A type of pension plan that is sponsored by one employer or a group of employers under a common control structure. It may also be a pension program that is not collectively bargained and is sponsored by a group of unrelated firms.


1

Analyze your current situation, risk tolerance, time horizon, and goals


2

Open your account


3

Monitor and rebalance investments