Employer-sponsored qualified retirement plans can be effective tools for saving for retirement. If your employer offers a retirement plan, participate in it and learn how you can take full advantage of the opportunity to save.

The most common employer-sponsored plans are:

401(k) plan

• You elect to contribute a percentage of your pay to a plan account established for you.
• Your contributions cannot exceed IRS and plan limits.
• You don't pay taxes on the contributed amounts or the investment earnings in your plan account until you withdraw funds from the plan, usually when you retire.
• Employer matches, if offered, provide you with an additional tax-deferred benefit.

Roth 401(k) plan

• Contributions are made after tax.
• Qualified distributions are tax free after you've had a Roth 401(k) at least five tax years and you're at least age 59½ or become disabled.
• You can choose to make contributions to both types of 401(k) accounts.

Defined benefit (DB) plan

• DB plans, also known as traditional pension plans, are becoming less prevalent as more private companies shift to defined contribution plans, such as 401(k)s. Pension plans are still common for government employees, however.
• Your employer makes tax-deferred contributions.
• When you retire, you receive a specified monthly pension, usually based on such factors as salary, age and seniority.
• Pension income is generally included in your annual taxable income.
• The federal Pension Benefit Guarantee Corporation insures private-sector DB plans.

403(b) plan

• Many public schools and certain tax-exempt organizations sponsor 403(b) plans, also called tax-sheltered annuities.
• You may be allowed to defer a portion of your pay on a pretax basis.
• You may be allowed to make contributions to a designated Roth account within the plan.

Governmental 457(b) plan

• Generally offered by government agencies, these plans allow you to contribute a portion of your pretax compensation to a plan account.
• All contributions and earnings grow tax deferred until distributed.
• These plans can offer designated Roth accounts as well as pretax accounts.

Profit sharing plan

• Your employer makes set or discretionary contributions to your plan account.
• These contributions are generally allocated among eligible employees based on compensation.
• You're taxed when you receive distributions from the plan.

Simplified Employee Pension (SEP) plan

• A SEP is similar to a profit sharing plan except that employer contributions are made to IRAs established for each plan participant.
• Contributions, together with any earnings they generate, grow tax deferred until distribution.

SIMPLE IRA

• Small businesses (generally, those with 100 or fewer employees) may offer a Savings Incentive Match Plan for Employees, or SIMPLE.
• These plans may be structured with IRAs for each participant.
• Eligible employees can make pretax salary deferral contributions, and the employer is required to contribute as well.

Solo 401(k)

• If you're a sole proprietor or operate another form of owner-only business, a solo 401(k) plan may be an option to look at.
• This type of plan generally may cover the owner's spouse as well, provided the spouse also works in the business.

Learning about your employer-sponsored retirement savings plan increases its value as an effective retirement planning tool. Begin by finding out these plan basics:

When can you join the plan? Can you transfer money from a previous employer's plan or an IRA? How much can you contribute to the plan per pay period? Does the company match the amount you contribute? If so, what is the percentage the company matches? What investment options does the plan offer? Where can you get information about the options? How often can you reallocate money in your account among investment options? Are resources available to help you make investment decisions? Can you take a loan from your account? A hardship withdrawal? Can you make catch-up contributions at age 50 or older? What happens to your savings if you leave the company? How can you access your account? Whom can you contact with questions about the plan?

This is not intended to be legal or tax advice or to provide a comprehensive discussion of 401(k) plans or other types of tax-qualified retirement plans. It is intended only as a general, nontechnical summary of certain basic concepts applicable to 401(k) and other types of tax-qualified retirement plans. Investors should consult a tax advisor for information concerning their individual situation.