401(a) plans, also called Teacher Incentive and Teacher Matching plans, are designed specifically for school employees.

The rules covering 401(a) plans vary from state to state and can vary within a school district so that, say, teachers get one benefit while custodians or paraprofessionals can get quite a different one. Distributions can take several forms, including lump sum, rollover or an annuity type payment.

If you change jobs, you have the flexibility to consolidate your savings in another public sector employer’s 401(a) plan or 401(k) plan, a tax-sheltered 403(b) annuity plan, a 457 plan, or a traditional Individual Retirement Account or IRA.

Probably the 401(a) most people are familiar with is from TIAA-CREF. Fidelity is another major player.

403(b) plans are very similar to a 401(k) plan. The biggest difference is who is eligible to participate. While a 401(k) plan covers private-sector workers, only employees of public schools and 501(c)(3) tax-exempt organizations can participate in a 403(b) plan.

Also, unlike the 401(k), 403(b) plan members can’t invest in individual stocks. They have money taken out of their paychecks on a pretax basis, which is then handled by a financial institution chosen by their employer. Like in a 401(k) plan, the money grows tax-deferred until retirement and is then taxed as ordinary income when withdrawn.

Generally, the maximum contribution is $10,500 or 20% of salary, whichever is less, but they do allow for a catch-up in contributions. If you did not max out your contributions in previous years, you can contribute more than the maximum with certain annual and total restrictions.

You may have heard 403(b) plans referred to as Tax Deferred Annuities or Tax-Sheltered Annuities. Those names come from back when the only investment options offered were for annuities, but investment options have been expanded for decades to include mutual funds.

If you’re eligible, all these plans can make a worthwhile addition to your retirement investing options.

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The biggest downside to savings bonds has been that the interest rate has always been very low.  Often it’s not even kept us with inflation.  That’s why the Government introduced the Series I (for inflation) savings bond.

The interest on a Series I bond is divided into 2 parts.  There is a fixed rate that remains the same for the life of the bond.  In addition, there is an inflation-adjusted adder rate that changes every 6 months, based on the Consumer Price Index.

The US Treasury changes the fixed rate periodically, but once you’ve bought your Series I bond, it’s locked in.  Over the last 5 years, the fixed rate component has ranged from a high of 3.6% in 2000 to a low of 1% in 2004.

Series I bonds are worth taking a look at as part of your overall retirement savings plan, but you should also consider other alternatives.  The average rate for an insured 6-month CD is 4.69% when this is written.  You can check the current rate at Bankrate.com.  Since this is the average, some banks are obviously offering more and some less.  Our local bank is currently paying 4.4%.  Online, E-Loan’s bank is currently offering 5.5%. You can check out what they are currently offering here.  E-Loan

Series I bonds have some advantages.  They are exempt from state and local taxes, and you don’t have to pay federal taxes on the earnings until you cash in the bond.  On the other hand, unlike a 6-month CD, you must keep a Series I bond at least a year before you can cash it in.  Also if you cash in a Series I bond before you’ve had it at least 5 years, you won’t get the last 3 months interest.

You may be able to do better on interest at your local bank or online, but those rates aren’t guaranteed to adjust with inflation.  Check it out and compare.  In addition to federal tax deferred interest, there may be other things to consider.  Where you live and whether you must pay state and local income taxes can make a big difference.  So check with you tax advisor to see if adding Series I bonds to your retirement investments makes sense for you.

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While choosing a retirement investment plan might be fairly easy if you have a sole proprietorship that brings in a limited amount of income, the more successful your small business is, the more choices become available and the more variables you must consider which will affect your decision.

For example, you may have incorporated your business, you could have employees, or you could be making an awful lot of money (don’t we wish!). You could also have a job, in addition to your business, or be over 50. All these variables, plus more, can significantly affect what self-employed retirement investing plan is best for you.

For the self-employed, Keogh plans are the equivalent of big time corporate retirement plans, like the pension plans our parents counted on. Keogh’s can be set up either as profit-sharing plans or defined benefit pension plans

Annual contributions to a Keogh profit-sharing plan are based on a percentage of your self-employment income (or the salary you make as an employee of your own corporation) with a $44,000 cap on contributions.

On the other hand, if you choose a defined benefit pension plan, your contributions are based on your targeted retirement benefit. For example, if your goal is to get a $50,000 a year pension, your contributions will be based on what it will take to achieve that goal, including your income, your age, and the assumed return on your investments. (You can have a Keogh set up to give you as much as $175,000 a year.)

However, because you have a targeted goal, you have to contribute whatever it will take to achieve that goal. If you have a bad year, your contribution won’t decrease, no matter the effect on your income. The upside is that, if you haven’t done much retirement financial planning, are getting closer to retirement age, and are making really good money, the Keogh can be a way to catch up fast because it allows you to contribute so very much more to your retirement than any other retirement program.

Do keep in mind, though, that should you choose a Keogh and have employees, you will have to make contributions for them as well, which may affect the amount you’ll be able to set aside for yourself. So make sure you get professional advice before making your retirement investment planning choice.

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People with small or significantly variable self-employment earnings may be better off looking at retirement investment plans that also allow them the flexibility of whether or not to make a contribution at any given time.

For self-employed people in that situation, the best choices include SEPs and self-employed 401(k) plans.

A SEP (Simplified Employee Pension) lets you contribute up to 20% of your self-employment income (and that percentage increases to 25% of your salary if you’re an employee of your own corporation), up to a current maximum of $44,000 a year.

If you have employees, you can still have a SEP, and you can set up a SEP any time up to the time you file your taxes. In addition, you can vary the amount of contribution as needed since you are not locked into a specific contribution amount or percentage. This obviously can be a big plus if your income fluctuates

However, if you make a contribution for yourself, you have to make it for all your employees. Also, be aware that you can’t take out loans against your SEP.

On the other hand, a self-employed 401(k) plan - also called a solo and individual 401(k) - does allow loans to be taken out against it. Indeed, you can transfer your IRAs, regular 401(k), or any other pretax-retirement funds, whatever the amount, to your self-employed 401(k) account and then borrow from it.

However, self-employed 401(k) plans are only available if you have no employees, although they can be used for multiple owners, as well as for spouses who are employees.

Like the SEP, a self-employed 401(k) plan also allows annual contributions of up to $44,000. (By the way, maximum contributions for both SEP’s and self-employed 401(k)s can be affected by whether or not you participate in any other retirement plan. Check with your retirement investment planner or tax advisor before making your decision.)

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However, there are many tax-free self-employed retirement plan options available nowadays. For example:

Simplified employee pensions (SEP) let you contribute…and deduct…up to 20% of your self-employment earnings (25% if you’re an employee of your own corporation), up to $44,000 a year.

Keogh plans are a lot more elaborate, and can be either profit sharing or defined benefit pension plans. Keogh’s also allow tax-free contributions up to $44,000 a year for the profit-sharing option. Defined pension plan contributions have to be determined by an actuary and depend on your income, your target benefit (which can be up to $175,000 a year!), the number of years until your retirement and the anticipated investment returns. Obviously Keogh’s are more expensive to administer than other options.

An individual 401(k) plan lets you contribute up to 100% of the first $15,000 of your annual self-employment earnings/income (up $20,000 if you’ll be 50+ by the end of the year). In addition, you can also contribute and deduct another 25% of your salary (if you’re an employee of your own corporation) or 20% of your self-employment income.

And…if you want to put aside a little bit more and are willing to pay taxes now, rather than later, there’s always the Roth IRA in addition to whatever tax-free or tax deferred plan you’ve decided on. You’ll have to pay taxes on your Roth contributions, but your earnings will be tax-free! And, yes, you’ll only be able to contribute up to $4,000 a year ($8,000 if you’re married or $5,000/$9,000 if you’re 50+), but a Roth allows you to add to your retirement investing, and you’ll be able to withdraw all that Roth money when you retire and won’t have to pay a cent in taxes.

Not preparing for retirement when you’re self-employed is like not planning to pay the bills for your business. Sure, you can do it. But why? Think of all the trouble you’ll make for yourself. And just like all the other things you know you need to do for your business, the key is to get started as soon as possible.

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Many articles on retirement planning and investing for retirement focus on what is the best investment if you have an extra $10,000 or $100,000 lying around. That’s a good thing to know if you really have an extra $10,000 or $100,000. But what about the rest of us?

Sometimes simple changes in our habits can make a tremendous difference in our future. We all know we need to save for the future - and to save on a consistent basis. That’s the cornerstone of retirement planning. But where do we find the money for investments or retirement planning?

Let me show you something that hopefully inspires you to get started investing if you haven’t already. Starbucks charges about $3.75 plus tax for a mocha latte frappachino.

A visit to Starbucks, often daily, has become a habit for many of us. But what would happen if you used that $3.75 a day for retirement planning?

If you begin when you’re 25 and saved $3.75 a day, 5 days a week, that’s about $81.25 you’d have to invest in an Individual Retirement Account (IRA) or other tax deferred account every month. If you earned 8% interest in your IRA, you would have over $285,000 at Age 65.

If you’re already past Age 25, the same principle still applies. There will just be less time to invest and less time for the miracle of compound interest to multiply your money. If you began at Age 35, you would have $187,000 at age 65. Even if you began at Age 45, you would still have nearly $78,000 in your Individual Retirement Account or IRA at Age 65.

This post is not a criticism of Starbucks. They make great coffee. If you don’t buy it there, you can always make it at home or the office for less than 15 cents a cup. You don’t have to give up coffee to begin saving for retirement. The point is that saving even a small amount of money on a consistent basis can pay huge dividends in the future.

Retirement investing requires some discipline, and yes, maybe a little sacrifice. If it’s not Starbucks, find some other expense you can cut back on, and begin your retirement planning by making regular contributions into your IRA or 401(k) plan today.

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