Lots of 

when you set up 

or participate 

in an employee 

retirement plan

■ Retirement 

can last for 

40 years 

■ Retirees may need 

up to 80% of their 

income to retire 

comfortably 

■ The average 

monthly Social 

Security payment 

is around $1,500

HIGHLIGHTS

Benefits

Did you know...
2

Here’s a quick look at the value of compounding interest.

Your Monthly 

Savings

Your Savings 

Growth in 

5 Years*

Your Savings 

Growth in 

15 Years*

Your Savings 

Growth in 

30 Years*

$100 $7,808 $41,792 $227,933

$300 $23,425 $125,377 $683,798

$500 $39,041 $208,962 $1,139,663

*assuming 10% annual earnings compounded monthly

This brochure highlights the many benefits of a retirement plan for both 

employers and employees. It addresses the initial steps when you’re thinking 

about a retirement plan, and then covers the working stages of a plan — 

choosing, establishing, and operating. And finally, it includes resources and 

contacts for further assistance with a retirement plan.

The Internal Revenue Service offers information for employers and 

employees on tax rules that apply to retirement plans. This information for 

business owners, tax professionals, retirement plan administrators, and plan 

participants is posted on the IRS Retirement Plans webpage at 

www.irs.gov/retirement.

2

COMPOUNDING COUNTS!
3

The following shows different savings initiatives of two 

young workers:

■ June graduated from college at 20, went to work, but didn’t start 

saving for retirement until she turned 30. June will have to contribute 

$300 a month for over 30 years to earn a million dollars by the time she 

turns 65 and retires.

■ April graduated from college when she was 20. She went to work and 

immediately began participating in her employer’s retirement plan, 

saving $300 each month.

She chose diversified investments in her employer’s plan that on 

average earned 10% per year.

April got married, started a family and decided to stay home after 

working for 10 years. April had contributed $36,000 to her retirement 

fund while working and didn’t contribute another penny. Because of 

compounding, when April turned 65, she had over two million dollars 

in her retirement account. 

3

$300 monthly 

savings with 10% 

compounded 

earnings 

April, 

who started saving early, yielded...

June, 

who started saving later, yielded...

contributions*

total 

accumulated 

contributions

account 

balance

contributions*

total 

accumulated 

contributions

account 

balance

Year 10 $36,000 $36,000 $61,966 $0 $0 $0

Year 20 $0 $36,000 $167,743 $36,000 $36,000 $61,966

Year 30 $0 $36,000 $454,089 $36,000 $72,000 $229,709

Year 40 $0 $36,000 $1,229,236 $36,000 $108,000 $683,798

Year 45 $0 $36,000 $2,022,474 $18,000 $126,000 $1,148,483

*$300 a month times number of years

Remember, April contributed $36,000 in the 10 years she was employed. All subsequent year earnings are 

based on her initial contributions of $36,000.

The chart below shows the comparison of savings for June and April.

June would have had to contribute much more out-of-pocket for her money to have grown to a million 

dollars. Her contributions had less time to grow, or compound.

START EARLY
4

Why should you be interested in a retirement plan, and what are the 

benefits of having a plan?

Retirement plans allow investing in the future now for financial security later in retirement. As 

a bonus, businesses and employees get significant tax advantages and other incentives while 

investing in retirement.

Business benefits include:

■ employer contributions are tax deductible,

■ assets in a plan grow tax-free,

■ businesses may receive tax credits and other incentives for starting a retirement plan,

■ flexible plan options are available, and

■ a retirement plan can attract and may help retain employees, thus reducing new employee 

training costs.

Employee benefits include:

■ tax on employee contributions is deferred until distributed (except for Roth contributions),

■ investment gains in a plan are not taxed until distributed (gains on Roth contributions are 

excluded),

■ retirement assets can be carried from one employer to another,

■ contributions can be made easily through payroll deductions,

■ Saver’s Credit is available to those who qualify, and

■ better financial security is available at retirement.

What steps can you take to learn about and set up a retirement plan?

Start by contacting either a tax professional familiar with retirement plans or a financial 

institution that offers retirement plans.

See the last page for other websites and telephone numbers to access IRS retirement plan 

reading materials or to get answers to your retirement plan tax-related questions. You can 

access detailed information on retirement plans at www.irs.gov/retirement.

BENEFITS NOW, BENEFITS LATER

FIRST STEPS
5

What are the “working stages” of a retirement plan?

Every retirement plan has three key stages — choosing, establishing, and operating the 

plan.

Choosing – Decide to invest in your future. Begin thinking about your retirement needs, 

and then learn specifically about ways you can put money aside for your retirement and 

the retirement of your employees.

Establishing – Take the necessary steps to put your retirement plan in place. The 

administrative steps to set up the plan may vary, depending on the type of plan you 

choose. Examples include:

■ arranging a fund for the plan’s assets,

■ adopting a written plan,

■ notifying eligible employees, and

■ developing a recordkeeping system for your plan.

Operating – Apply the terms of your retirement plan so it grows and evolves into 

the valuable retirement vehicle you need. There are several steps you’ll need to take 

to operate the plan on an ongoing basis, depending on the type of plan you choose. 

Examples include: 

■ covering eligible employees,

■ making appropriate contributions,

■ keeping the plan up-to-date with the retirement plan law,

■ managing the plan assets,

■ providing information to employees participating in the plan, and

■ distributing appropriate benefits.

Check out IRS Publication 3998, Choosing a Retirement Solution for Your Small 

Business, which displays a chart of retirement plan products to help you choose, 

establish, and operate a plan that’s right for you and your employees.

ALONG THE WAY
..

Access retirement plan information or assistance through:

■ www.irs.gov/retirement

■ 877-829-5500: Employee Plans Customer Account Services

View the following publications at www.irs.gov:

■ Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans)

■ Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)

■ Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)

■ Publication 3998, Choosing a Retirement Solution for Your Small Business (Español)

■ Publication 4222, 401(k) Plans for Small Businesses

■ Publication 4333, SEP Retirement Plans for Small Businesses

■ Publication 4334, SIMPLE IRA Plans for Small Businesses

■ Publication 4587, Payroll Deduction IRAs for Small Businesses

■ Publication 4674, Automatic Enrollment 401(k) Plans for Small Businesses

■ Publication 4806, Profit Sharing Plans for Small Businesses

Publication 4118 is also available in other languages on our forms and publications page.

Publication 4118 (Rev. 5-2021) Catalog Number 35198N Department of the Treasury Internal Revenue Service www.irs.gov

IRS RETIREMENT PLAN RESOURCES

For general taxpayer 

assistance, contact the IRS at 

800-829-1040