Choosing a Retirement Plan: Plan Options


Starting a retirement savings plan can be easier than most people think. What's more, there are many retirement programs that provide tax benefits to both employers and employees.

Payroll Deduction IRA

If an employer does not want to adopt a retirement plan, it can allow its employees to contribute to an IRA through payroll deductions. This option provides eligible employees with a simple and direct way to save.

Salary Reduction Simplified Employee Pension (SARSEP)

A SARSEP is a SEP set up before 1997 that includes a salary reduction arrangement. This is a simplified plan, so the costs to administer should be lower than for other, more complex plans. Instead of establishing a separate retirement plan, with a SARSEP, employers make contributions to their own IRA and the IRAs of their employees, subject to certain percentages of pay and dollar limits

Simplified Employee Pension (SEP)

Simplified Employee Pensions (SEPs) provide an easy way for employers to make contributions to a retirement plan for their employees. Instead of setting up a profit-sharing or money purchase plan with a trust, employers can adopt a SEP agreement and make contributions directly to an individual retirement account or an individual retirement annuity created for each eligible employee.


A SIMPLE IRA plan allows some small employers (including self-employed individuals) to set up a tax-favored retirement plan for their employees' benefit. This plan is a written, salary reduction agreement that allows employers to contribute salary reductions to a SIMPLE IRA on behalf of eligible employees.

401(k) Plan

A 401(k) plan is a type of defined contribution plan that allows employee salary deferrals and/or employer contributions.

SIMPLE 401(k) Plan

This plan is a type of defined contribution plan that is available to small business owners with 100 or fewer employees. Under a SIMPLE 401(k) Plan, an employee can elect to defer some compensation. Unlike a standard 401(k) plan, the employer must make: (1) a matching contribution up to 3% of each employee's pay, or (2) a non-elective contribution of 2% of each eligible employee's pay.

403(b) Tax-Sheltered Annuity Plan

A 403(b) plan is an annuity plan for certain public schools, colleges, universities, churches, public hospitals, and charitable entities deemed tax-exempt under IRC section 501(c)(3).

Profit-Sharing Plan

A profit-sharing plan is a type of defined contribution plan which allows discretionary, annual employer contributions.

Money Purchase Plan

A money purchase plan is a type of defined contribution plan with fixed employer contributions.

Defined Benefit Plan

A defined benefit plan is a type of plan that is funded primarily by the employer. Contributions for these plans are actuarially determined.