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) Similar to the sections in the Internal Revenue Code, the plans 401(k), 403(b) and 457 offers the employees a chance to defer tax on a fraction of their income by making contributions to the retirement account initiated under the plan. Unlike 401(k), 403(b) is applicable to tax-exempt units while governmental units are eligible under 457. An employer offering 401(k) and 403(b) generally puts forward a Roth version to its employees.

Typically, the legal restrictions to the annual contributions that can be made under these plans are higher than those imposed by IRAs. Moreover, employees aged fifty or above are given the additional option to make up catch-up contributions. Others enjoy an equivalent contribution by the employer, making it virtually free money!

401(k), 403(b) and 457 plans are expected to follow the minimum distribution rules similar to the IRAs. However, the difference lies in the fact that under certain conditions, you can continue to contribute to these plans even after you turn 701/2.

Solo 401(k) plan Solo 401(k) is a retirement plan meant for a self-employed individual. As the conventional 401(k) is not meant for these people, the solo 401(k) was launched that includes a combination of the features of 401(k) with other plans.

The solo 401(k) is highly beneficial to the self-employed. Under the plan, the individual can make contributions under the 401(k) limit including the relevant catch-up amounts, if any, along with the contributions to a SEP IRA. A three-source contribution, thereby, triples your capital investment towards retirement. But as solo 401(k) is meant for self-employed people, you will have to opt for a 401(k) if you have employees under you. Any contribution, however, needs to possess the requisite amount necessary for the payment. Absence of steady payments into the funds will result in a loss of wealth spent on the cost and administration of the plan.

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 limits imposed on the amount to be contributed in SIMPLE 401(k) are lower than that for 401(k) plans. You can also find SIMPLE 401(k) plans that have rules that go more or less in line with the SIMPLE IRA. But the slight difference between the two makes SIMPLE IRAs more desirable. A typical example is that while limited testing is necessary for a SIMPLE 401(k) plan, the discrimination testing is not a part of the package of SIMPLE IRA.

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. .

An ESOP is a variety of defined contribution plan suited for closely-held businesses.

Defined benefit plans: Although not popular as it once was, the defined benefit plans is a traditional system under which the employees cannot make their contribution to the annual retirement benefit. The complete investment risk attached to the scheme is accepted by the company who offers assurances of payment. Unlike defined contribution plans, funds that are segregated by employees, the defined benefit plan fund is often pooled.

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.

This data is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional advice or opinions and assumes no liability in connection with its use. Please contact Doeren Mayhew for more information.

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