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Savings
Fitness:
A Guide To Your Money and Your Financial Future
Financial Fitness for the Self-Employed
Types Of Defined Contribution
Plans
The following are some of
the most common types of defined contribution plans. For a more detailed
description and comparison of some of these plans, go to the Web site
http://www.dol.gov/ebsa
and click on the Retirement
Savings Education Campaign, then follow the prompt to the Small
Business Advisor.
401(k)
Plan. This is the most popular of the defined contribution
plans and is most commonly offered by larger employers. Employers often
match employee contributions.
403(b)
Tax-Sheltered Annuity Plan. Think of this as a 401
(k) plan for employees of school systems and certain nonprofit organizations.
Investments are made in tax-sheltered annuities or mutual funds.
SIMPLE
IRA. The Savings Incentive Match Plan for Employees
of Small Employers is one of the newest types of employer-based retirement
plans. There is also a 401 (k) version of the SIMPLE.
Profit-Sharing
Plan. The employer shares company profits with employees,
usually based on the level of each employee's wages.
ESOP.
Employee stock ownership plans are similar to profit-sharing plans, except
that an ESOP must invest primarily in company stock. Under an ESOP, the
employees share in the ownership of the company.
SEP.
Simplified employee pension plans are used by both small employers and
the self-employed.
Other retirement plans you
may want to learn more about include money purchase plans; 457 plans,
which cover state and local government workers; and the Federal Thrift
Savings Plan, which covers federal employees. If you are eligible, you
may also want to open a Roth IRA.
What To Do If You Can't
Join an Employer-Based Plan
You may not be able to join
an employer-based retirement plan because you are not eligible or because
the employer doesn't offer one. Fortunately, there are steps you can still
take to build your retirement strength.
Take
a job with a plan. If two jobs offer similar pay
and working conditions, the job that offers retirement benefits maybe
the better choice.
Start
your own plan. If you can't join a company plan,
you can save on your own.
You can't put away as much
on a tax-deferred basis, and you won't have an employer match. Still,
you can build a healthy nest egg if you work at it.
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