Companies with 100 or fewer employees could benefit from the small business pension plan, called Simple IRA -- Savings Incentive Match Plan for Employees. A Simple IRA plan is a tax-favored retirement plan.

Employers must make either a non-elective contribution of two percent of compensation or a matching contribution of three percent each year and must notify the employee prior to the beginning of each year which contribution type the employer will make.

All employee and employer contributions are fully vested and tax-deferred until withdrawn. When eventually withdrawn, Simple IRAs are taxed as ordinary income. Generally, withdrawals before two years of participation are subject to an additional penalty of 25% (unless you are 59½ or older or meet other exceptions). After this two year wait, the rules applicable to Traditional IRAs apply.

From the employer prospective, retirement plans are a wonderful benefit to implement in order to attract and retain employees.

From the participants prospective, 401ks, IRA’s and all qualified retirement accounts are wonderful tools for growth during the accumulation phase of money. Careful planning is necessary when using these funds for a majority of one’s retirement assets due to the possible challenges of these accounts during the distribution and preservation phases of money. For example: If the tax structure should increase in future years then tax distributions would be at a higher rate than when contributions were made. This would create a reverse tax strategy.