Plans for employees, employers, and self-employed people

401(k), 403(b) or 457 plans. These are pre-tax investment plans offered to employees of for-profit (401(k)), nonprofit (403(b)), or public agency (457) organizations. If such a plan is offered through your workplace, be sure to take advantage of it, especially if your employer matches your contribution (that's like free money!). You can usually take money from these plans with you when you change jobs, though some of the employer contributions may not be yours to take until you have worked there for a certain number of years ("vesting"). If you are an employer interested in setting up a program, consult a professional adviser to learn more.

Roth 401(k). This new type of investment plan became effective January 1, 2006 and includes features that resemble both the traditional 401(k) plan and the Roth IRA. Roth 401(k)s may appeal to younger individuals or those with higher incomes, who prefer to pay taxes on invested money now rather than paying taxes on withdrawals later, when they believe their tax rate will be greater. Choosing this option might cut the size of your take-home pay; if this is so, be sure that you can afford the income reduction. The decision to make Roth type plan contributions is not reversible later. Make sure that your plan has been "properly amended" under IRS rules to accept Roth 401(k) contributions. Before you choose this option, ask about the tax consequences, effect on employer matches of your contributions, effect on your paycheck, and impact on your other tax-advantaged investments; be sure you understand contribution limits, withdrawal restrictions, and other limitations.

Qualified Plan or HR(10) (Keogh). This is a specialized plan for self-employed individuals with high, stable income. There are several different types. Check with your professional financial adviser on setting up such a plan, including contributions you are required to make for employees.

Simplified Employee Pension Plan (SEP). This is an option for self-employed people and businesses of any size. Contributions you make for employees become the employee's property immediately. Check with a professional adviser about legal requirements. The paperwork for this kind of program is simpler than that for the Qualified Plan, but the contribution limits are generally smaller.

Savings Incentive Match Plan for Employees (SIMPLE). This plan is available for firms with 100 or fewer employees, where employees can make pretax contributions. Employers must match dollar-for-dollar of employee contributions up to 3% of their annual salary, or make a flat contribution of 2% of salary for every qualified employee, regardless of whether the employee makes a contribution. The employer contributions are tax deductible. Employees are vested immediately but cannot borrow from the plan, and withdrawal penalties are fairly high.