Solo 401(k) plan

Alternatively known as a Solo-k, Uni-k and One-participant k, the Solo 401(k) plan is designed for a business owner and his or her spouse.

Because the business owner is both the employer and employee, elective deferrals of up to $19,500 can be made, plus a non-elective contribution of up to 25 percent of compensation up to a total annual contribution of $57,000 for incorporated businesses, not including catch-up contributions. The limit for unincorporated businesses is 20 percent, says Littell.

Pros: “If you don’t have other employees, a solo is better than a SIMPLE IRA because you can contribute more to it,” says Littell. “The SEP is a little easier to set up and to terminate. So if you don’t want to contribute more than 20 percent of your earnings, I would set up a SEP.” However, if you want to set up your plan as a Roth, you can’t do it in a SEP, but you can with a Solo-k.

Cons: It’s a bit more complicated to set up, and once assets exceed $250,000, you’ll have to file an annual report on Form 5500-SE.

What it means to you: If you have plans to expand and hire employees, this plan won’t work. Once you hire other workers, the IRS mandates that they must be included in the plan if they meet eligibility requirements, and the plan will be subject to non-discrimination testing.

Pensions

Pensions, more formally known as defined benefit (DB) plans, are the easiest to manage because so little is required of you.

Pensions are fully funded by employers and provide a fixed monthly benefit to workers at retirement. But DB plans are on the endangered species list because fewer companies are offering them. Just 16 percent of Fortune 500 companies enticed workers with pension plans in 2017, down from 59 percent in 1998.

Why? DB plans require the employer to make good on an expensive promise to fund a hefty sum for your retirement. Pensions, which are payable for life, usually replace a percentage of your pay based on your tenure and salary. A common formula is 1.5 percent of final average compensation multiplied by years of service, according to Littell. A worker with an average pay of $50,000 over a 25-year career, for example, would receive an annual pension payout of $18,750, or $1,562.50 a month.

Pros: This benefit addresses longevity risk – or the risk of running out of money before you die. “If you understand that your company is providing a replacement of 30 percent to 40 percent of your pay for the rest of your life, plus you’re getting 40 percent from Social Security, this provides a strong baseline of financial security,” says Littell. “Additional savings can help but are not as central to your retirement security.”

Cons: Since the formula is generally tied to years of service and compensation, the benefit grows more rapidly at the end of your career. “If you were to change jobs or if the company were to terminate the plan before you hit retirement age, you can get a lot less than the benefit you originally expected,” says Littell.

What it means to you: Since company pensions are increasingly rare and valuable, if you are fortunate enough to have one, leaving the company can be a major decision. Should you stay or should you go? It depends on the financial strength of your employer, how long you’ve been with the company and how close you are to retiring. You can also factor in your job satisfaction and whether there are better employment opportunities elsewhere.