Retirement Plan Types

There are a few retirement plan types an employer may offer. If you have the choice, choosing the right retirement plan type is very important. Whatever retirement plan types you choose will affect your retirement in the long run. Apart from the few retirement plan types that your employer offers, you can also set up your own individual retirement account or IRA outside of work. An IRA is a type of retirement plan.

Qualified retirement plan types

Most employers offer qualified retirement plans. Qualified retirement plans are called as such because they follow government rules in order to qualify for special tax treatment. Qualified retirement plan types are categorized as follow.

Defined benefit plan

The first of the qualified retirement plan types is the defined benefit plan. A defined benefit plan includes both traditional defined benefit plan and cash balance plan.

Defined contribution plan

The second of qualified retirement plan types is the defined contribution plan or profit sharing plan.

401k plan

The last of the qualified retirement plan types is the famous 401k plan. The 401k plan is also known as deferred pay or salary deduction plan.

Most employers offer multiple retirement plan types

Most large employers offer more than one type of retirement plans. They usually offer two part retirement plans. Part one of the retirement plan types they offer is a defined benefit plan which is paid for by the company. This type of retirement plan is similar to a pension plan and many companies have replaced with the cash balance plan.

What is a cash balance plan?

Cash balance plans are hybrid pension retirement plan types that meet the funding and legal qualifications for a defined benefit plan but not the same.

Part two of the retirement plan types is the self directed retirement plan. This self directed employer retirement plan allows employees to boost retirement benefits through their own savings. This is often magnified by the matching contributions from the employers.