Employer-sponsored plans with employee contributions

A good starting point for retirement saving is your employer-sponsored plan. Employer plans usually accept automatic contributions from your paycheck, and the money you contribute generally grows tax-deferred.

In addition, if your employer offers to match your plan contributions, you should take full advantage of this opportunity. An employer match will supplement your savings without any extra effort on your part. If you're not sure if you have an employer match, you can ask your HR or benefits department for your employer plan summary description.

	401(k)	403(b)	Governmental 457(b)	SIMPLE IRA
Which type of employer can offer the plan?	For profit or nonprofit organizations	501(c)(3) nonprofit organizations and public schools	Any state or local government entity	For profit, nonprofit or government organizations with fewer than 100 employees
Who is eligible to participate? (Some employers may be less restrictive)	Employees age 21 and over, with at least one year of service	Generally all employees are eligible	Eligibility is generally at the employer's discretion	Employees with at least $5,000 of compensation in any two previous years of service and who anticipate compensation of at least $5,000 in the current year
How much of your salary can you contribute for 2009?	$16,500, or $22,000 if you are age 50 or older	$16,500, or $22,000 if you are age 50 or older (Additional catch up contributions may also be available)	$16,500, or $22,000 if you are age 50 or older (Additional catch up contributions may also be available)	$11,500, or $14,000 if you are age 50 or older
Additional considerations	May have a loan provision	May have a loan provision	No loan provision	No loan provision
	Roth 401(k) contributions may be allowed	Roth 403(b) contributions may be allowed	No Roth contribution option	No Roth contribution option
	Employer match may be available	Employer match may be available	No additional employer contributions	Additional employer contributions required
	10% IRS penalty on early withdrawals (exceptions apply)	10% IRS penalty on early withdrawals (exceptions apply)	No penalty on early withdrawals	25% penalty on early withdrawals for the first two years, 10% penalty thereafter (exceptions apply)

Pre-tax vs. Roth deferrals

Some employer plans offer you the option to make Roth 401(k) or Roth 403(b) contributions instead of the standard pre-tax contribution to your 401(k) or 403(b). Determining which contribution option to choose depends in part on your tax bracket now and in retirement, in addition to the amount of time you have before you retire.

• Pre-tax contribution. When you make a pre-tax contribution to a retirement plan, you receive a tax benefit right away, but you will have to pay taxes on the money when you withdraw it. In general, a person in a higher tax bracket and who anticipates being in a lower tax bracket at retirement may find a pre-tax deferral more favorable.
• Roth contribution. You won't receive a current tax benefit but qualified distributions are tax-free in retirement. In general, a person in a lower tax bracket and who anticipates being in a higher tax bracket in retirement may find a Roth contribution more favorable.

There are other factors to consider as well so be sure to talk with your financial advisor and tax professional before making a decision.

Employer-funded plans

Some employers offer plans where all eligible employees automatically benefit, without having to make contributions from their salary. Even though you do not need to personally contribute to these plans, you'll still need to select beneficiaries, may need to choose the investments, and will want to factor them into your overall plan for retirement.

	Profit Sharing	SEP	Pension/Defined Benefit
Which type of employer can offer this plan?	Primarily for-profit organizations, though nonprofits and government employers may also establish	For-profit, nonprofit or government organizations	For-profit, nonprofit or government organizations
Who is eligible to participate? (Some employers may be less restrictive)	Employees with two years and at least 1,000 hours of service per year, if there is immediate vesting (with a vesting schedule, one year and 1,000 hours of service)	Employees age 21 or older who perform service in at least three of the prior five plan years, and who receive at least a required minimum amount of compensation in the current year ($550 in 2009)	Employees with one year and 1,000 hours of service
What is the maximum that can be contributed for 2009?	100% of compensation, up to $49,000 (employer's deduction is capped at 25% of eligible payroll)	25% of compensation, up to $49,000	Contributions must not exceed the amount required to fund the maximum annual benefit (For 2009, the lesser of $195,000 or 100% of average compensation for highest three consecutive years)
Additional features	Loans may be available	No loan provisions	No loan provisions
	May have a vesting schedule	Immediate vesting	May have a vesting schedule
	Employer contributions are discretionary	Employer contributions are discretionary	Employer contributions are mandatory
	Employee typically directs investments	Employee always directs investments	Employer directs investments

Individual Retirement Accounts (IRAs)

If you're already participating in an employer-sponsored plan but are able to save more, or if you don't have access to an employer plan, you should consider contributing to an IRA. IRAs allow you to hold almost any kind of investment, and offer different tax benefits depending on your income level and the type of IRA you select.

Traditional IRAs can offer a particular tax advantage if you expect to be in a lower tax bracket when you retire. If you qualify for pre-tax contributions, your current taxes may be reduced and the taxes you pay when you withdraw the money may be less than you would pay now. However, as you consider a traditional IRA, keep in mind that at age 70 1/2 you must take Required Minimum Distributions (RMDs), and can no longer contribute to your IRA.

A Roth IRA may be an advantageous way for you to invest if you are in a lower tax bracket, especially if you anticipate being in a higher tax bracket in retirement. The earnings in your Roth IRA are tax-free upon withdrawal (if certain requirements are met). This can be a powerful advantage. Assuming that you expect your tax bracket to be higher in retirement than it is now, there may be a significant benefit to giving up the current tax deduction and making do with a smaller paycheck in order to gain the tax-free growth and withdrawal.

	Traditional IRA	Roth IRA
Who is eligible to make contributions?	Individuals under age 70 1/2 with earned income Non-working spouses of individuals with earned income, if under age 70 1/2	Individuals of any age (subject to earned income and tax filing status limits) Non-working spouses of individuals (subject to earned income and tax filing status limits); no age limits
What is the maximum you can contribute for 2009? (Limits apply to combined Traditional and Roth contributions)	Lesser of $5,000 ($6,000 if you are age 50 or older) or 100% of earned income	Lesser of $5,000 ($6,000 if you are age 50 or older) or 100% of earned income
How are contributions and distributions taxed?	Contributions may be tax-deductible, depending on whether or not you or your spouse have a retirement plan at work and your income. Contributions grow tax-deferred until withdrawn. Distributions of pre-tax contributions and earnings are taxed at your ordinary income tax rate.	Contributions are non-deductible. Earnings are tax- and penalty-free if: Distributed five years or more from the first day of the first year that funds were first contributed or converted to any Roth IRA for the individual, and At least one of the following applies: age 59 1/2, death, disability, first time home purchase (up to $10,000).
Additional considerations	Required minimum distributions beginning at age 70 1/2 (RMDs are suspended for tax year 2009.) Distributions to an individual who has non-deductible contributions in any of his or her IRAs will consist of taxable and non taxable amounts on a pro rata basis. Distributions of taxable amounts prior to age 59 1/2 are subject to a 10% IRS penalty (exceptions apply).	No required minimum distributions1 Contributions are distributed first and are always non-taxable Early withdrawals of earnings may be subject to tax and a 10% IRS penalty if distributed prior to age 59 1/2 (exceptions apply)

There are other factors to take into account as well so be sure to talk with your financial advisor and tax professional before making a decision about what IRA is right for you.

More ways to save

While employer-sponsored plans and IRAs offer important opportunities for retirement savings, they may not be enough to provide the retirement you want. Personal savings will likely play a critical role in funding your retirement as well. It is important to think about all of the vehicles available as you plan for a secure retirement.

An Ameriprise financial advisor can help identify which accounts are right for you, and allocate investments to each account. As your needs and circumstances change over time, your Ameriprise financial advisor will adjust your plan to help ensure you stay on track.