WHAT TYPES OF PLANS ARE AVAILABLE?
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Compared to your parent's or grandparent's era, today's Internal
Revenue rules permit a full palette of employer retirement plan options. There
is a hue and color to suit most employers?and employees. Here we discuss several
of the most common of these plans.
You have probably heard or read about 401(k) plans; or perhaps
you are one of the more than 20 million Americans who participate in one. 401(k)
and other profit sharing plans enable employers to assist their employees' retirement
planning efforts through contributions to each participating employee's account.
In addition, all employees?regardless of the amount of their salary or wages?can
contribute to their plans through regular payroll deductions. Employees generally
can choose to invest their 401(k) retirement funds in a number of alternatives?such
as stocks and bonds, mutual funds, money market funds, and annuities.
While larger companies often provide 401(k) plans, smaller companies
sometimes provide one of two types of IRAs; both are less costly to administer
than 401(k)s. The savings incentive match plan for employees (SIMPLE
IRA) serves companies with 100 or fewer employees, including self-employed people.
It may be structured like a 401(k) plan or a traditional IRA, except that the traditional IRA contribution limit does not apply. The simplified employee
pension (SEP-IRA) enables a company with 25 or fewer employees to establish
an IRA for each employee. Again, the traditional IRA minimum does not apply. If you are
self-employed, you also may establish a SEP for yourself.
A Keogh plan provides another option if you are self-employed
or an employee of an unincorporated business. It may take the form of a 401(k)
or almost any other type of retirement plan qualified in the Internal Revenue
Finally, 403(b) plans offer a retirement savings option
to many public school teachers, professors, and employees of nonprofit organizations.
These plans enable you to contribute pre-tax compensation to a mutual fund account
or an annuity contract purchased from an insurance company.
But how much can you contribute? Read on to learn about allowable
employee and employer contributions.