BOSTON (CBS) – You may have a 401(k) (which is mostly used in private industry but is available to any employer to set up), a 403(b) which is for nonprofit organizations such as schools and hospitals, a 457 plan which covers state, county and city employees and there is a Thrift Savings Plan for federal employees.
Also available for some employees a new option, the Roth 401(k) plan, where you contribute the dollars after taxes and the withdrawals in retirement would be free of federal tax. Most employers are not offering a Roth 401(k) just yet.
Tax law changes made several years ago put retirement plans (401(k), 403(b) and 457) on a more equal footing. This year the contribution limit is $16,500. But you have to be able to earn enough so that you have the extra $16,500 to contribute to a retirement plan.
If you are self-employed or are working for a small company with fewer than 100 employees and using a SIMPLE IRA (Savings Incentive Match Plan for Employees) for your retirement plan, the limit this year is $11,500.
The SIMPLE is based on a dollar amount, not a percentage, so if you earn $15,000 in your part time business and want to beef up your retirement plan you can put away $11,500 for this year. A SIMPLE plan must be set up by October 1st of the year you wish to open it.
There is the Simplified Employee Pension plans, known as SEP IRAs. Here you can contribute up to 25% of your income or $49,000 which ever is smaller. SEPs are one of the easiest plans to set up if you are self-employed or have a small business with one or two employees.
Contributions can be made when you file your tax return. And the business makes the contributions. So if you put away 25% for yourself you must put away 25% for each employee.
The self-employed individual can also set up a 401(k) retirement plan for one and if your spouse works with you, for two. Limits here are the same as a traditional 401(k) plans $16,500 for this year.
The IRA limits did not change from last year. You can contribute up to $5,000. You must have earned income to contribute to an IRA. This includes the traditional IRA where you get a tax deduction for the contribution, a Spousal IRA where one of the spouses must have earned income, a Roth IRA where you make your contribution with after tax dollars and a nondeductible IRA.