There are several different kinds of pension plans available to help you save for retirement, including:

Individual Retirement Plans: An individual retirement account (IRA) is a personal investment plan. An IRA offers a tax advantage for contributions and earnings. However, income taxes are taken out when you withdraw the money. In addition, penalties are attached if you withdraw money before the age of 59 ½ years. With a Roth IRA, a specialized IRA plan, earnings and withdrawals are not taxed.

Company Retirement Plans: There are two kinds of company retirement plans to which your employer can contribute money:

1) Under a defined benefit plan, you receive a specific benefit amount upon retirement based on such criteria as salary history and number of years served in the company. An example is $10 per month for each year of service.

2) With a defined contribution plan, both you and your employer contribute a specified amount of money into an investment plan. Benefits at retirement are not a guaranteed amount, but are dependent on the amount contributed and the performance (gains or losses) of the investment account during the years of employment. Benefits are also determined by your age, number of years with the company, and salary.

The most popular defined contribution plan is the 401(k) in which employees contribute a percentage of their salary to an investment fund. Fund gains or losses depend on market forces and the performance of the stock market. There are penalties for withdrawal before retirement. With profit sharing, or a stock bonus plan, the employer contributes a set amount to the plan each year based on company profits and the employee’s salary. Employee stock ownership plans (ESOP) are contribution plans in which investments are in employer stock.

With simplified employee pensions (SEPs), small business employers can make contributions directly into their employees’ IRA, which the employee controls. The savings incentive match plan for employees (SIMPLE) for the self-employed and small businesses allow employees to contribute up to $10,000 per year, and the employer can match funds based on a percentage of the employee’s salary.