If you�ve recently made the jump into the wild world of self-employment, you�re probably overwhelmed with the freedom�and the responsibility!  Life was easy before�you just collected a paycheck and selected benefits, including how much you wanted to contribute to your 401K. 

Now, things are more complicated.  However, the good news is that you now have better choices in terms of retirement investing.  Let�s take a quick overview of these options� and then compare them for you in an easy to use format.  It will be up to you, however, to make the final call after your own research has been done on this somewhat complex subject.  So with that�

What Are My Options?
First, an overall comment: Think of retirement plans in terms of a roll-top desk with a lot of different types of desk drawers!  Basically, you can put money in this drawer or that drawer, but the drawers have different sizes and shapes.  It�s really the same thing with a retirement plan�they all involve money (or stock, bonds, gold, etc) that you put into a �drawer� �but the IRS determines how the �drawer� is shaped�and how BIG the drawer is�and how often you will �open� and �put stuff in� the drawer. 

Second, this article is talking about tax deferred retirement options only�which means that these options allow you to either deduct the allowed amounts from your taxes or exclude it altogether from your gross income!  There are many other smart �after tax� opportunities that you can get involved in (such as the Roth IRA).  However, we just don�t have time to talk about them right now.

Third, as far as we are concerned, all retirement plans can basically be grouped into 2

 categories: 

• Defined Benefit
• Defined Contribution

A Defined Benefit plan guarantees a particular amount (benefit) that the employee will receive during retirement.  What this means is that you will have to do some intense calculating and maintaining, complete with hiring a pension consultant and/or an actuary.  Believe us, you don�t want to mess with the Defined Benefit plan�they are the most complex to establish and administer (including their IRS paperwork)!   In our opinion, we only recommend even considering this type of plan if you have started late in life as far as investing and you want a massive headache!

Defined Contribution plans are ones in which you (as the owner) specify the yearly contribution made to your employee (again, YOU if you are self-employed).  These types of plans focus on the amount that you contribute�but don�t guarantee any particular amount for the employee at retirement. 

Overall the Defined Contribution plans are not as hard to administer and set up as a defined benefit plan.  Many of what we are calling Defined Benefit plans are also called �Qualified� plans because they are �qualified� by the IRS.  Translate �qualified� to mean that you have to deal a lot more with the IRS in starting and maintaining a plan.  (Not exactly what you might think of when you think of the term �quality time.�)  We will explain some of the other benefits below.