Making the Right Pension Choice
Once you've assessed your goals
and have a basic understanding of the types
of retirement plans available to you, you're ready to make some choices.
If you're interested in maximizing the amount of money that you can
contribute to the plan (primarily for your own purposes of saving), check out:
If you're interested in low-cost, simplified plans for employees, consider:
For a completely different alternative, you also may want to check out nonqualified
Let's say you're a sole proprietor who wants to set up a retirement plan.
Which one should you choose?
- If you expect your income to remain constant and you want to defer as much
of your compensation as the law allows, you may need a defined
benefit plan, which would require set annual contributions (note:
defined benefit plans tend to lack flexibility and have high administrative
costs). These are especially useful for older business owners who anticipate
retiring in the not-too-distant future.
- If your income is not expected to remain constant, you may also opt for a
profit-sharing plan because the rules requiring you to make annual
contributions are more flexible than in defined benefit plans.
Now let's say you're a small business owner with two employees. Which type of
plan should you choose?
- If you're younger than your employees, you may want to choose a 401(k)
plan because it will give you some flexibility at a relatively low cost.
- If you're older than your employees, you may want to choose a target
benefit plan, which allows disproportionately greater contributions for
- If high costs and administrative complexity have kept you from offering a
retirement plan, you may want to consider a SIMPLE