Also known as a SEP-IRA, this retirement plan lets you establish individual retirement accounts for yourself and your eligible employees. You can also have a SEP if you are self-employed. Setting up a SEP can be as simple as completing a short, written agreement. Other than annual disclosure statements to employees, there are no filing requirements.

SEPs can be funded only by employer contributions, but they offer flexibility because you decide each year how much you want to contribute. Annual contributions for each employee are based on a percentage of compensation, with a maximum dollar limit. Unlike other plans, SEPs can be established up until the extended due date of your tax return.

The 401(k) plan is a type of employer-sponsored retirement plan that allows participants to contribute a certain percent of their salary each year. Employers can match employee contributions. An employee is not taxed on either his contribution or the employer's contribution until withdrawal from the plan. The earnings on the account also accumulate tax-deferred.

There are requirements that prevent highly compensated employees from contributing large amounts while the rank and file contribute little. A 
401(k) is more complicated to maintain than a SEP, and it has annual IRS reporting requirements. 

Like a SEP, a SIMPLE plan consists of individual retirement accounts (IRAs) for yourself and eligible employees. Alternatively, a SIMPLE plan can also be established as a 401(k) plan. Either type can easily be set up with a bank or insurance company using a "model," or standard plan document. In a SIMPLE plan, employees can make voluntary contributions through payroll deductions, and an employer matching contribution is required.

There are two requirements for setting up a SIMPLE plan: you must have 100 or fewer employees, and you cannot offer another retirement plan. Also, a SIMPLE plan must generally be established before October 1 of any calendar year.

A Keogh (or H.R. 10) plan is a retirement plan for self-employed people and their employees. If you have earnings from self-employment, whether full-time or part-time, you are probably eligible to establish a Keogh plan.

Keoghs have become more attractive as a result of tax legislation that has made allowable contributions for Keoghs the same as those for corporate pension plans.

There are two major types of Keoghs: 

1. Defined contribution plans require contributions based on a percentage of wages (for employees) and profits (for owners). The benefits that the participants will receive at retirement depend upon how much these contributions and the earnings on them have accumulated to at retirement time.

 

 
 
 

Defined contribution Keoghs come in several forms including money purchase plans, target benefit plans, and profit sharing plans. The advantage to a profit sharing plan is that the amount of annual contributions can vary from the maximum to no contribution at all depending on the profitability of the business. Annual contributions are required for money purchase plans.
 

2. Defined benefit plans require contributions based on the amount of the retirement benefit the plan is to pay out. An actuary must be used to determine the required annual contribution. Benefits that a participant may receive upon retirement are limited by law.

All Keogh plans have more complicated reporting requirements than the SEP. Business owners cannot cover just themselves in a Keogh; they must make contributions for employees as well.

Keoghs must be established be December 31 of the tax year in which you want to take a deduction for a contribution. Contributions can be made up to the due date of the company's tax return, including extensions.