A retirement plan is good business for small business. As a business owner, a retirement plan lets you build your own assets and take advantage of key tax savings. From the company perspective, a retirement plan helps to attract and retain the qualified employees required to help your business succeed.

The best choice of plan depends on many factors, and there are a wide range of plans to choose from. These overviews highlight the advantages and disadvantages of the most common plans. Be sure to speak with a qualified retirement specialist to find out about critical rules and requirements.

Simplified Employee Pension (SEP) Plan
A SEP plan allows you, as an employer, to create a retirement account for yourself and each of your employees. SEPs have low start-up costs and can be quite easy to set up. If you don’t have employees, a SEP can be an easy way to save more than a typical IRA – this year, you can set aside up to 20% of self-employment income, to a maximum of $46,000. However, if you have employees, you must make equal contributions – in terms of percentage of pay ‐ for each of them. This rule will also apply to you, which may limit how much you can put aside for yourself.

SIMPLE IRA
For small companies that have employees but don’t yet have a retirement plan, a SIMPLE (Savings Incentive Match Plan for Employees) IRA has potential. SIMPLE plans trade off lower annual contribution limits in return for easier and less expensive administration than plans such as traditional 401(k)s. However, they may also be less flexible. A SIMPLE IRA is funded through a mix of optional employee salary deferrals and mandatory employer contributions. These contributions are made directly into individual employees’ IRAs. The amount of the total contribution is less than that of a SEP – employees can defer up to $10,500 in 2008. Employers, in turn, are generally required to match employee contributions up to 3% of the employee’s compensation.

Safe Harbor 401(k)
401(k) plans have become standard tax-deferred savings plans. They’re flexible, easy to understand, and help employees to control their investments. But they can also be costly and complicated to administer. An alternative is a Safe Harbor 401(k) which provides a simplified method of meeting reporting requirements, particularly in the area of non-discrimination (in terms of favoring high-salaried employees over others). This makes it a solid option for companies where owners, shareholders and a few key employees play a large role. There is a trade-off for this simplicity – unlike a traditional 401(k), a Safe Harbor 401(k) requires mandatory employer contributions.

Solo 401(k)
If you don’t have employees and are looking to maximize contributions to a deductible retirement account, a solo 401(k) may be a good option. Its maximum contribution is similar to that of a SEP. However, because the first $15,500 in a solo 401(k) is not based on a percentage of your income, you may be able to contribute more than you can in a SEP, especially if you earn a small percentage of your income from freelancing.

Profit-Sharing Plan
As the name suggests, a profit-sharing plan provides retirement benefits to your employees based on the company’s performance. It can be a powerful way to reward employees for their role in the success of your business. If you have employees, this option gives you a lot of flexibility, because your contributions are discretionary and you can vary them from year to year. Be aware, however, that the plan may be subject to nondiscrimination testing, and will likely require the services of a professional administrator.