If you are considering forming a retirement plan for your corporation, your first consideration should be the best type of plan to meet your goals. Qualified corporate plans are either defined benefit or defined contribution plans. Defined benefit plans can provide several advantages including larger contribution and deductions; however, defined contribution plans are generally a more practical place to start for smaller corporations.

Defined benefit plans are designed to provide a specific benefit for all employees. The amount of contribution is based on the amount that will be required to achieve the specific benefit level for qualified employees. The contribution is based on actuarial calculations and may vary based on the investment program. The contributions are a fixed obligation of the corporation and must be made annually to the plan regardless of the company's profits.

Defined contribution plans define or fix an annual contribution rate rather than provide a specific benefit. The benefits of these plans are determined by the amount of contributions made and investment performance. Contributions are usually a percentage of employee salary. Defined contribution plans include Profit Sharing Plans, Money Purchase Pension Plans, 401(k) Plans and Cafeteria Plans. Each plan has unique eligibility requirements, contribution limits and distribution rules. The best plan for your corporation will be determined by your particular situation, goals and resources.