According to the U.S. Small Business Administration, small businesses including nonprofit organizations employ nearly half of the private-sector workforce in the United States. However, a majority of these employers do not offer retirement benefits to their employees.

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Establishing a retirement plan provides valuable advantages for the organization, its owners or directors and employees. Employer contributions are generally tax-deductible on their tax returns, and investment earnings grow tax-deferred, allowing both business owners and employees to build long-term financial security.

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If you‘re like many other small business owners in the United States, you may be considering the various retirement plan options available for your company. Retirement plans typically fall into two categories: defined benefit plans and defined contribution plans.

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Defined benefit plans are designed to provide a desired retirement benefit for each participant. This type of plan can allow for a rapid accumulation of assets over a short period of time. The required contribution is actuarially determined each year, based on factors such as age, years of employment, the desired retirement benefit, and the value of plan assets. Contributions are generally required each year and can vary widely.

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A defined contribution plan, on the other hand, does not promise a specific amount of benefit at retirement. In these plans, employees or their employer (or both) contribute to employees’ individual accounts under the plan. A 401(k) plan for corporations or 403 (b) plan for non-profit organizations is one type of defined contribution plan commonly known. Even a self-employed business owner without employees can establish a Solo 401(k) plan for themselves. Other types of defined contribution plans include profit-sharing plans, money purchase plans and employee stock ownership plans.

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Employer-sponsored retirement plans have become a key component for retirement savings. They are also an increasingly important tool for attracting and retaining the high-quality employees you need to compete in today’s competitive environment.

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Business owners set up retirement plans for different reasons. Primarily, the goal is to help themselves and employees to save for their own retirement in a tax-efficient manner. Consult a qualified tax and financial professional for further evaluation of your choices.