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Types of Retirement Plans

Engineering Plans

Defined Benefit Plans

Modern take on a traditional pension plan that allows for large tax-deductible contributions. Plan defines the benefit payable at retirement age, and company contributions and investment returns combine to pay the promised benefit. Solo Pensions will recommend a contrbution with a target benefit in mind. Contributions to defiend benefit plans are typically significantly larger than those that can be achieved with a defined contribution plans (401(k), profit-sharing, SEP IRA, etc.)

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Traditional Defined Benefit Plans

Plan benefit is expressed as life annuity payable at retirement, but allows you to take distribution as a lump sum. Allows for range of annual contribution that, when combined with investment returns, funds the plan's promised benefit. 

Defined Contribution Plans

Balance

Cash Balance Plans

Increasingly popular hybrid plan, where the benefit is expressed as an account balance. Annual conttribution amount can be a fix dollar amount, a maximum amount allowable by law or be based on a formula tied to annual compensation.

Most common and popular defined contribution plans
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Most prevalent type of plan for employers large and small and typically the first plan a company should consider. These plans employer and/or employee contributions. The accumulated benefit is simply the account balance (contributions plus investment returns), than can be rolled over to another tax advantage account upon plan terminations.

401(k) Plan

Profit Sharing Plan

Simplified Employee Pension (SEP)

Employee contributions, up to $22,500 in 2023

Discretionary contribution made by the "employer."

401(k) Profit Sharing Plan

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Simplified version of a profit sharing plan and popular amongst small business owners. Reduced administration requirements and fees but far less features, flexibility and typically contribution amounts  than a 401(k) profit sharing plan.

401(k) provisions and profit sharing provisions can be combined into a single 401(k) Profit Sharing Plan, as typically is done for a business owner with no employees. Maximum annual contribution for 2023 is $66,000.

Other defined contribution plans
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Less common plans

SIMPLE IRA

403(b)

Money Purchase Plans

IRA

457 Plans

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