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6 Types of Retirement Plans You Should Know About

Each Type Comes With Its Own Restrictions and Benefits

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Learning how to plan for retirement doesn't have to feel overwhelming. The various retirement plans available are easier to understand than you might think, although each is subject to its own limitations. Some of these limitations depend on your modified adjusted gross income, while others involve a cap on the amount of money you can contribute yearly.

Tax treatment of withdrawals—and the age at which you can and must take withdrawals without penalty—can vary among types of plans as well. A comparison can help you identify which is best for you. 

401(k) Plans

A 401(k) plan is a workplace retirement account that's offered as an employee savings plan benefit . This account allows you to contribute a portion of your pre-tax paycheck to tax-deferred investments. That reduces the amount of income you must pay taxes on that year. For example, if you were to earn $75,000 and contribute $5,000 to your 401(k), you'd only be taxed on $70,000.

Investment gains grow tax-deferred until you withdraw the money in retirement. If you withdraw funds from the plan before age 59 1/2, however, you could pay a  10% penalty , and the withdrawal would be subject to federal and state income taxes. Some plans allow 401(k) loans, however, if you find yourself in a cash emergency.

Some employers match their employees' contributions to a 401(k), typically up to 6%. However, you might not be fully "vested" in your plan for a number of years. That means you wouldn't be able to take your employer's contributions with you if you were to leave the company before the prescribed period of time had elapsed. Your own contributions to the plan are always yours, however. 

If you're not contributing up to the company match, you could be ignoring a significant employee benefit. That match is effectively free money. Employers who offer these plans are often willing to let you make contributions through automatic payroll deductions, which can make saving easier.

Investment choices for these types of plans are often limited, and management and administrative fees can be high. The IRS imposes contribution limits per year, although limits for 401(k) plans are more generous than those for other plans: $20,500 in 2022 (up from $19,500 in 2021). This increases to $26,000 if you're 50 or older and take advantage of the allowed $6,500 catch-up contribution.

Variations of this type of account include the  403(b) , a similar retirement plan offered to educators (e.g. in public schools), clergy, and workers at 501(c)-3 tax-exempt organizations; and  457(b) plans , which are offered to state or local government employees,

Individual Retirement Accounts (IRAs)

An IRA is a tax-favored investment account. You can use the account to invest in stocks, bonds, mutual funds, ETFs, and other types of investments after you place money into it, and you make the investment decisions yourself unless you want to hire someone else to do so for you. You might consider investing in a traditional IRA if your employer doesn't offer a retirement plan or if you've maxed out your 401(k) contributions for the year.

You can contribute up to $6,000 in 2022. This increases to $7,000 if you're age 50 or older. This limit is unchanged from 2021 limits. You'll pay no taxes annually on investment gains, which helps them to grow more quickly.

Many taxpayers can deduct their IRA contributions on their income tax returns if they don't also have a 401(k) retirement account, which reduces their taxable income for that year. Some restrictions exist based on income.  You pay income taxes on the money you contributed and on gains when the money is withdrawn in retirement.  

You can buy and sell investments within the IRA, but if you try to take money out before you reach age 59 1/2, that is known as an "early distribution," and you'll probably have to pay a 10% penalty fee, just as you would with a 401(k). You'll also be subject to federal and state and income taxes on the withdrawal. 

Unlike a traditional IRA, Roth IRA contributions are made with after-tax dollars, but any money generated within the Roth is never taxed again.

You can withdraw contributions you've made to a Roth IRA before retirement age without penalty, provided five years have passed since your first contribution. You're not currently required to begin taking withdrawals at age 72, as you are with traditional IRAs, 401(k)s, and other retirement savings plans.  

Putting money in a Roth is a great place to invest extra cash if you're just starting out, and you think your income will grow. You can even contribute to both an IRA and a Roth IRA, but your total contributions to both plans can't exceed the $6,000 contribution limit for the year or $7,000 if you're age 50 or older.

Roth 401(k)

A Roth 401(k) combines features of the Roth IRA and a 401(k). It's a type of account offered through employers, introduced in 2006. As with a Roth IRA, contributions come from your after-tax paycheck rather than your pre-tax salary. Contributions and earnings in a Roth are never taxed again if you remain in the plan for at least five years.

The best part about a Roth 401(k) is that there is no income limit as with a Roth IRA. The annual contributions are the same as a traditional 401(k), too—just with after-tax dollars. Withdrawals are the same as with a Roth IRA as well, but the distribution rules match those of a traditional 401(k).

The Savings Incentive Match for Employees (SIMPLE) IRA is a retirement plan that small businesses with up to 100 employees can offer. It works very much like a 401(k).

Contributions are made with pre-tax paycheck withdrawals, and the money grows tax-deferred until retirement.

Early distributions can result in a hefty penalty, however. Unless you qualify for an exception, you’ll have to pay an additional 10% tax on the amount you withdraw from your SIMPLE IRA (similar to Traditional IRAs and 401(k) plans). If you make the withdrawal within two years from when you first participated in the SIMPLE IRA plan, this additional tax increases to 25%. You can't borrow from a SIMPLE IRA, either, the way you can from a 401(k). 

A Simplified Employee Pension (SEP) IRA allows you to contribute a portion of your income to your own retirement account if you're self-employed and have no employees. You can fully deduct these contributions from your taxable income.

The maximum annual contribution limits are higher than most other tax-favored retirement accounts: $61,000 for 2022 (up from $58,000 in 2021), or 25% of income— whichever is less.

Frequently Asked Questions (FAQs)

How much should i be saving for retirement.

The amount of money you should be saving for retirement depends on many factors, including your current cost of living and salary. If you're looking for a good retirement savings goal, shoot for 15% of your annual income, including employer contributions.

Can I have more than one IRA account?

You can have more than one IRA account , but that doesn't change the amount you are allowed to contribute to them each year, which is $6,000 if you are under 50 and $7,000 if you are 50 or older.

Do I have to start taking money out of an IRA at a specific time?

There is no required minimum distribution for a Roth IRA, but for a traditional IRA, you must start taking money out of the account by April 1 following the year you turn age 72 and by December 31 each year after that. That age is lowered to 70 1/2 if you reached it before January 1, 2020.

U.S. Securities and Exchange Commission. " 401(k) Plan ."

Internal Revenue Service. " Retirement Topics - Exceptions to Tax On Early Distributions ."

Morgan Stanley. " You Work Hard, Make Your 401(k) Plan Work Harder ."

Internal Revenue Service. " Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits ."

Internal Revenue Service. " Retirement Topics - IRA Contribution Limits ."

Internal Revenue Service. " Income Ranges for Determining IRA Eligibility Change for 2021 ."

Internal Revenue Service. " Traditional IRAs ."

Internal Revenue Service. " IRA FAQs - Distributions (Withdrawals) ."

Internal Revenue Service. " Publication 590-B (2019): Distributions From Individual Retirement Arrangements (IRAs) ," Page 28.

Internal Revenue Service. " Roth Comparison Chart ."

Internal Revenue Service. " SIMPLE IRA Plan FAQs - Establishing a SIMPLE IRA Plan ."

Internal Revenue Service. " SIMPLE IRA Withdrawal and Transfer Rules ."

Internal Revenue Service. " SEP Contribution Limits (Including Grandfathered SARSEPs) ."

T. Rowe Price. " You’re Age 35, 50, or 60: How Much Should You Have Saved for Retirement by Now? "

Internal Revenue Service. " Traditional and Roth IRAs ."

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A 401(k) plan for a self-employed individual with no employees other than a spouse.

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How do contributions work?

SE 401(k) : Employers may contribute up to 25% of compensation, up to a maximum of $66,000 in 2023.⁵ Employees may contribute up to $22,500 for 2023 ($30,000 if age 50 or older).⁵

SEP IRA : Employers may contribute between 0% and 25% of compensation up to a maximum of $66,000 for 2023.⁵ Each eligible employee must receive the same percentage.

Fidelity Advantage 401(k) : Employers make matching contributions, up to 4% of the annual gross compensation of all employees.⁴ Employees may contribute up to $22,500 for 2023 (catch up contributions available).⁵

SIMPLE IRA : Employers contribute either a match contribution of 1, 2, or 3% or a non-elective contribution of 2%. Participants may contribute up to 100% of compensation with a maximum of $15,500 for 2023 ($19,000 if age 50 or older).

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SIMPLE IRA : Both employees and employers can contribute.

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SE 401(k) : You can take a withdrawal once you’ve had a triggering event, such as disability, plan termination, turning age 59 ½ or older, and a few others. However, some withdrawals may incur a 10% penalty.

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Types of Retirement Plans

The Employee Retirement Income Security Act (ERISA) covers two types of retirement plans: defined benefit plans and defined contribution plans.

A defined benefit plan promises a specified monthly benefit at retirement. The plan may state this promised benefit as an exact dollar amount, such as $100 per month at retirement. Or, more commonly, it may calculate a benefit through a plan formula that considers such factors as salary and service - for example, 1 percent of average salary for the last 5 years of employment for every year of service with an employer. The benefits in most traditional defined benefit plans are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC) .

A defined contribution plan, on the other hand, does not promise a specific amount of benefits at retirement. In these plans, the employee or the employer (or both) contribute to the employee's individual account under the plan, sometimes at a set rate, such as 5 percent of earnings annually. These contributions generally are invested on the employee's behalf. The employee will ultimately receive the balance in their account, which is based on contributions plus or minus investment gains or losses. The value of the account will fluctuate due to the changes in the value of the investments. Examples of defined contribution plans include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans.

A Simplified Employee Pension Plan (SEP) is a relatively uncomplicated retirement savings vehicle. A SEP allows employees to make contributions on a tax-favored basis to individual retirement accounts (IRAs) owned by the employees. SEPs are subject to minimal reporting and disclosure requirements. Under a SEP, an employee must set up an IRA to accept the employer's contributions. Employers may no longer set up Salary Reduction SEPs. However, employers are permitted to establish SIMPLE IRA plans with salary reduction contributions. If an employer had a salary reduction SEP, the employer may continue to allow salary reduction contributions to the plan.

A Profit Sharing Plan or Stock Bonus Plan is a defined contribution plan under which the plan may provide, or the employer may determine, annually, how much will be contributed to the plan (out of profits or otherwise). The plan contains a formula for allocating to each participant a portion of each annual contribution. A profit sharing plan or stock bonus plan may include a 401(k) plan.

A 401(k) Plan is a defined contribution plan that is a cash or deferred arrangement. Employees can elect to defer receiving a portion of their salary which is instead contributed on their behalf, before taxes, to the 401(k) plan. Sometimes the employer may match these contributions. There is a dollar limit on the amount an employee may elect to defer each year. An employer must advise employees of any limits that may apply. Employees who participate in 401(k) plans assume responsibility for their retirement income by contributing part of their salary and, in many instances, by directing their own investments.

An Employee Stock Ownership Plan (ESOP) is a form of defined contribution plan in which the investments are primarily in employer stock.

A Cash Balance Plan is a defined benefit plan that defines the benefit in terms that are more characteristic of a defined contribution plan. In other words, a cash balance plan defines the promised benefit in terms of a stated account balance. In a typical cash balance plan, a participant's account is credited each year with a "pay credit" (such as 5 percent of compensation from his or her employer) and an "interest credit" (either a fixed rate or a variable rate that is linked to an index such as the one-year treasury bill rate). Increases and decreases in the value of the plan's investments do not directly affect the benefit amounts promised to participants. Thus, the investment risks and rewards on plan assets are borne solely by the employer. When a participant becomes entitled to receive benefits under a cash balance plan, the benefits that are received are defined in terms of an account balance. The benefits in most cash balance plans, as in most traditional defined benefit plans, are protected, within certain limitations, by federal insurance provided through the Pension Benefit Guaranty Corporation (PBGC) .

Web Pages on This Topic

Cash Balance Plans: Questions and Answers (PDF) - Provides answers to commonly asked questions about cash balance plans.

Consumer Information on Retirement Plans - Publications and other materials providing information about your rights as retirement plan participants under federal retirement law.

Compliance Assistance - Provides publications and other materials designed to assist employers and employee benefit plan practitioners in understanding and complying with the requirements of ERISA as it applies to the administration ofemployee pension and health benefit plans.

Choosing a Retirement Solutions for Your Small Business (PDF) - Provides information about retirement plan options for small businesses.

ERISA Filing Acceptance System (EFAST2) - EFAST2 is an all-electronic system designed by the Department of Labor, Internal Revenue Service, and Pension Benefit Guaranty Corporation to simplify and expedite the submission, receipt, and processing of the Form 5500 and Form 5500-SF.

QDROs: The Division of Retirement Benefits through Qualified Domestic Relations Orders (PDF) - QDROs are domestic relations orders that recognize the existence of an alternate payee's right to receive benefits payable to a participant under a retirement plan. This publication provides questions and answers on QDROs.

Retirement and Health Care Coverage: Questions and Answers for Dislocated Workers (PDF) - Provides answers to commonly asked questions from dislocated workers about their retirement and health plan benefits.

SIMPLE IRA Plans for Small Businesses (PDF) - Provides information about the basic features and requirements of SIMPLE IRA plans.

SEP Retirement Plans for Small Businesses (PDF) - Describes an easy, low-cost retirement plan option for employers.

Understanding Retirement Plan Fees And Expenses (PDF) - Provides information about plan fees to help you evaluate your plan’s investment options and prospective providers.

401(k) Plan Fees Disclosure Tool - Model comparative chart for disclosures to participants of performance and fee information to help them compare plan investment options.

What You Should Know About Your Retirement Plan (PDF) - Provides information to help answer many of the most common questions about retirement plans.

Your Employer's Bankruptcy: How Will it Affect Your Employee Benefit? (PDF) - Provides information on bankruptcy's effect on retirement plans and group health plans.

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9 best retirement plans in September 2023

Bankrate principal writer and editor James F. Royal, Ph.D., covers investing and wealth management. His work has been cited by CNBC, the Washington Post, The New York Times and more.

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It can be easy to let planning for retirement slip by, while you’re focusing on your career or raising children. In fact, 55 percent of working Americans say they’re behind on retirement savings, according to a   2022 Bankrate survey . So it’s important to know what options you have and their benefits, when it comes to creating a financially secure future.

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On This Page

The 9 best retirement plans

Key plan benefits to consider, which retirement plan is best for you, how to get started, what is the best investment strategy for retirement.

  • Related content
  • Defined contribution plans
  • Solo 401(k) plan
  • Traditional pensions
  • Guaranteed income annuities (GIAs)
  • The Federal Thrift Savings Plan
  • Cash-balance plans
  • Cash-value life insurance plan
  • Nonqualified deferred compensation plans (NQDC)

1. Defined contribution plans

Since their introduction in the early 1980s, defined contribution (DC) plans , which include 401(k)s, have all but taken over the retirement marketplace. Roughly 86 percent of Fortune 500 companies offered only DC plans rather than traditional pensions in 2019, according to a recent study from insurance broker Willis Towers Watson.

The 401(k) plan is the most ubiquitous DC plan among employers of all sizes, while the similarly structured 403(b) plan is offered to employees of public schools and certain tax-exempt organizations, and the 457(b) plan is most commonly available to state and local governments.

The employee's contribution limit for each plan is $22,500 in 2023 ($30,000 for those aged 50 and over).

Many DC plans offer a Roth version, such as the Roth 401(k) in which you use after-tax dollars to contribute, but you can take the money out tax-free at retirement.

"The Roth election makes sense if you expect your tax rate to be higher at retirement than it is at the time you're making the contribution," says Littell.

401(k) plans

A 401(k) plan is a tax-advantaged plan that offers a way to save for retirement. With a traditional 401(k) an employee contributes to the plan with pre-tax wages, meaning contributions are not considered taxable income. The 401(k) plan allows these contributions to grow tax-free until they’re withdrawn at retirement. At retirement, distributions create a taxable gain, though withdrawals before age 59 ½ may be subject to taxes and additional penalties.

With a Roth 401(k) an employee contributes after-tax dollars and gains are not taxed as long as they are withdrawn after age 59 1/2.

A 401(k) plan can be an easy way to save for retirement, because you can schedule the money to come out of your paycheck and be invested automatically. The money can be invested in a number of high-return investments such as stocks, and you won’t have to pay tax on the gains until you withdraw the funds (or ever in a Roth 401(k)). In addition, many employers offer you a match on contributions, giving you free money – and an automatic gain – just for saving.

One key disadvantage of 401(k) plans is that you may have to pay a penalty for accessing the money if you need it for an emergency. While many plans do allow you to take loans from your funds for qualified reasons, it’s not a guarantee that your employer’s plan will do that. Your investments are limited to the funds provided in your employer’s 401(k) program, so you may not be able to invest in what you want to.

What it means to you:

A 401(k) plan is one of the best ways to save for retirement, and if you can get bonus “match” money from your employer, you can save even more quickly.

403(b) plans

A 403(b) plan is much the same as a 401(k) plan, but it’s offered by public schools, charities and some churches, among others. The employee contributes pre-tax money to the plan, so contributions are not considered taxable income, and these funds can grow tax-free until retirement. At retirement, withdrawals are treated as ordinary income, and distributions before age 59 ½ may create additional taxes and penalties.

Similar to the Roth 401(k), a Roth 403(b) allows you to save after-tax funds and withdraw them tax-free in retirement.

A 403(b) is an effective and popular way to save for retirement, and you can schedule the money to be automatically deducted from your paycheck, helping you to save more effectively. The money can be invested in a number of investments, including annuities or high-return assets such as stock funds, and you won’t have to pay taxes until you withdraw the money. Some employers may also offer you a matching contribution if you save money in a 403(b).

Like the 401(k), the money in a 403(b) plan can be difficult to access unless you have a qualified emergency. While you may still be able to access the money without an emergency, it may cost you additional penalties and taxes, though you can also take a loan from your 403(b). Another downside: You may not be able to invest in what you want, since your options are limited to the plan’s investment choices.

What it means to you: A 403(b) plan is one of the best ways for workers in certain sectors to save for retirement, especially if they can receive any matching funds. This 403(b) calculator can help you determine how much you can save for retirement.

457(b) plans

A 457(b) plan is similar to a 401(k), but it’s available only for employees of state and local governments and some tax-exempt organizations. In this tax-advantaged plan, an employee can contribute to the plan with pre-tax wages, meaning the income is not taxed. The 457(b) allows contributions to grow tax-free until retirement, and when the employee withdraws money, it becomes taxable.

A 457(b) plan can be an effective way to save for retirement, because of its tax advantages. The plan offers some special catch-up savings provisions for older workers that other plans don’t offer, as well. The 457(b) is considered a supplemental savings plan, and so withdrawals before age 59 ½ are not subject to the 10 percent penalty that 403(b) plans are.

The typical 457(b) plan does not offer an employer match, which makes it much less attractive than a 401(k) plan. Also, it’s even tougher to take an emergency withdrawal from a 457(b) plan than from a 401(k).

A 457(b) plan can be a good retirement plan, but it does offer some drawbacks compared to other defined contributions plans. And by offering withdrawals before the typical retirement age of 59 ½ without an additional penalty, the 457(b) can be beneficial for retired public servants who may have a physical disability and need access to their money.

2. IRA plans

An IRA is a valuable retirement plan created by the U.S. government to help workers save for retirement. Individuals can contribute up to $6,500 to an account in 2023, and workers over age 50 can contribute up to $7,500.

There are many kinds of IRAs, including a traditional IRA, Roth IRA, spousal IRA, rollover IRA, SEP IRA and SIMPLE IRA. Here’s what each is and how they differ from one another.

Traditional IRA

A traditional IRA is a tax-advantaged plan that allows you significant tax breaks while you save for retirement. Anyone who earns money by working can contribute to the plan with pre-tax dollars, meaning any contributions are not taxable income. The IRA allows these contributions to grow tax-free until the account holder withdraws them at retirement and they become taxable. Earlier withdrawals may leave the employee subject to additional taxes and penalties.

A traditional IRA is a very popular account to invest for retirement, because it offers some valuable tax benefits, and it also allows you to purchase an almost-limitless number of investments – stocks, bonds, CDs, real estate and still other things. Perhaps the biggest benefit, though, is that you won’t owe any tax until you withdraw the money at retirement.

If you need your money from a traditional IRA, it can be costly to remove it because of taxes and additional penalties. And an IRA requires you to invest the money yourself, whether that’s in a bank or in stocks or bonds or something else entirely. You’ll have to decide where and how you’ll invest the money, even if that’s only to ask an adviser to invest it.

What it means to you: A traditional IRA is one of the best retirement plans around, though if you can get a 401(k) plan with a matching contribution, that’s somewhat better. But if your employer doesn’t offer a defined contribution plan, then a traditional IRA is available to you instead — though the tax-deductibility of contributions is eliminated at higher income levels.

A Roth IRA is a newer take on a traditional IRA, and it offers substantial tax benefits. Contributions to a Roth IRA are made with after-tax money, meaning you’ve paid taxes on money that goes into the account. In exchange, you won’t have to pay tax on any contributions and earnings that come out of the account at retirement.

The Roth IRA offers several advantages, including the special ability to avoid taxes on all money taken out of the account in retirement, at age 59 ½ or later. The Roth IRA also provides lots of flexibility, because you can often take out contributions – not earnings – at any time without taxes or penalties. This flexibility actually makes the Roth IRA a great retirement plan.

As with a traditional IRA, you’ll have full control over the investments made in a Roth IRA. And that means you’ll need to decide how to invest the money or have someone do that job for you. There are income limits for contributing to a Roth IRA, though there’s a back-door way to get money into one.

A Roth IRA is an excellent choice for its huge tax advantages, and it’s an excellent choice if you’re able to grow your earnings for retirement and keep the taxman from touching it again.

Spousal IRA

IRAs are normally reserved for workers who have earned income, but the spousal IRA allows the spouse of a worker with earned income to fund an IRA as well. However, the working spouse’s taxable income must be more than the contributions made to any IRAs, and the spousal IRA can either be a traditional IRA or a Roth IRA.

The biggest positive of the spousal IRA is that it allows a non-working spouse to take advantage of an IRA’s various benefits, either the traditional or Roth version.

There’s not a particular downside to a spousal IRA, though like all IRAs, you’ll have to decide how to invest the money.

The spousal IRA allows you to take care of your spouse’s retirement planning without forcing your partner to have earned income, as would usually be the case. That may allow your spouse to stay home or take care of other family needs.

Rollover IRA

A rollover IRA is created when you move a retirement account such as a 401(k) or IRA to a new IRA account. You “roll” the money from one account to the rollover IRA, and can still take advantage of the tax benefits of an IRA. You can establish a rollover IRA at any institution that allows you to do so, and the rollover IRA can be either a traditional IRA or a Roth IRA. There’s no limit to the amount of money that can be transferred into a rollover IRA.

A rollover IRA also allows you to convert the type of retirement account, from a traditional 401(k) to a Roth IRA. These types of transfers can create tax liabilities , however, so it’s important to understand the consequences before you decide how to proceed.

A rollover IRA allows you to continue to take advantage of attractive tax benefits, if you decide to leave a former employer’s 401(k) plan for whatever reason. If you simply want to change IRA providers for an existing IRA, you can transfer your account to a new provider. As in all IRAs, you can buy a wide variety of investments.

Like all IRAs, you’ll need to decide how to invest the money, and that may cause problems for some people. You should pay special attention to any tax consequences for rolling over your money, because they can be substantial. But this is generally only an issue if you’re converting your account type from a traditional to a Roth version.

A rollover IRA is a convenient way to move from a 401(k) to an IRA.

The SEP IRA is set up like a traditional IRA, but for small business owners and their employees. Only the employer can contribute to this plan, and contributions go into a SEP IRA for each employee rather than a trust fund. Self-employed individuals can also set up a SEP IRA.

Contribution limits in 2023 are 25 percent of compensation or $66,000, whichever is less. Figuring out contribution limits for self-employed individuals is a bit more complicated .

"It's very similar to a profit-sharing plan," says Littell, because contributions can be made at the discretion of the employer.

For employees, this is a freebie retirement account. For self-employed individuals, the higher contribution limits make them much more attractive than a regular IRA.

There's no certainty about how much employees will accumulate in this plan. Also, the money is more easily accessible. This can be viewed as more good than bad, but Littell views it as bad.

Account holders are still tasked with making investment decisions. Resist the temptation to break open the account early. If you tap the money before age 59 ½, you'll likely have to pay a 10 percent penalty on top of income tax.

With 401(k) plans, employers have to pass several nondiscrimination tests each year to make sure that highly compensated workers aren't contributing too much to the plan relative to the rank-and-file.

The SIMPLE IRA bypasses those requirements because the same benefits are provided to all employees. The employer has a choice of whether to contribute a 3 percent match or make a 2 percent non-elective contribution even if the employee saves nothing in his or her own SIMPLE IRA.

Littell says most SIMPLE IRAs are designed to provide a match, so they provide an opportunity for workers to make pre-tax salary deferrals and receive a matching contribution. To the employee, this plan doesn't look much different from a 401(k) plan.

The employee contribution has a limit of $15,500 for 2023, compared to $22,500 for other defined contribution plans. But most people don't contribute that much anyway, says Littell.

As with other DC plans, employees have the same decisions to make: how much to contribute and how to invest the money. Some entrepreneurs prefer the SIMPLE IRA to the SEP IRA – here are the key differences .

3. Solo 401(k) plan

Alternatively known as a Solo-k, Uni-k and One-participant k, the solo 401(k) plan is designed for a business owner and his or her spouse.

Because the business owner is both the employer and employee, elective deferrals of up to $22,500 can be made in 2023, plus a non-elective contribution of up to 25 percent of compensation up to a total annual contribution of $66,000 for businesses, not including catch-up contributions of $7,500 for 2023.

"If you don't have other employees, a solo is better than a SIMPLE IRA because you can contribute more to it," says Littell. "The SEP is a little easier to set up and to terminate." However, if you want to set up your plan as a Roth, you can't do it in a SEP, but you can with a Solo-k.

It's a bit more complicated to set up, and once assets exceed $250,000, you'll have to file an annual report on Form 5500-SE.

If you have plans to expand and hire employees, this plan won't work . Once you hire other workers, the IRS mandates that they must be included in the plan if they meet eligibility requirements, and the plan will be subject to non-discrimination testing. The solo 401(k) compares favorably to the popular SEP IRA, too .

4. Traditional pensions

Traditional pensions are a type of defined benefit (DB) plan, and they are one of the easiest to manage because so little is required of you as an employee.

Pensions are fully funded by employers and provide a fixed monthly benefit to workers at retirement. But DB plans are on the endangered species list because fewer companies are offering them. Just 14 percent of Fortune 500 companies enticed new workers with pension plans in 2019, down from 59 percent in 1998, according to data from Willis Towers Watson.

Why? DB plans require the employer to make good on an expensive promise to fund a hefty sum for your retirement. Pensions, which are payable for life, usually replace a percentage of your pay based on your tenure and salary.

A common formula is 1.5 percent of final average compensation multiplied by years of service, according to Littell. A worker with an average pay of $50,000 over a 25-year career, for example, would receive an annual pension payout of $18,750, or $1,562.50 a month.

This benefit addresses longevity risk – or the risk of running out of money before you die.

"If you understand that your company is providing a replacement of 30 percent to 40 percent of your pay for the rest of your life, plus you're getting 40 percent from Social Security, this provides a strong baseline of financial security," says Littell. "Additional savings can help but are not as central to your retirement security."

Since the formula is generally tied to years of service and compensation, the benefit grows more rapidly at the end of your career. "If you were to change jobs or if the company were to terminate the plan before you hit retirement age, you can get a lot less than the benefit you originally expected," says Littell.

Since company pensions are increasingly rare and valuable, if you are fortunate enough to have one, leaving the company can be a major decision. Should you stay or should you go? It depends on the financial strength of your employer, how long you’ve been with the company and how close you are to retiring. You can also factor in your job satisfaction and whether there are better employment opportunities elsewhere.

5. Guaranteed income annuities (GIAs)

Guaranteed income annuities are generally not offered by employers, but individuals can buy these annuities to create their own pensions. You can trade a big lump sum at retirement and buy an immediate annuity to get a monthly payment for life, but most people aren't comfortable with this arrangement. More popular are deferred income annuities that are paid into over time.

For example, at age 50, you can begin making premium payments until age 65, if that's when you plan to retire. "Each time you make a payment, it bumps up your payment for life," says Littell.

You can buy these on an after-tax basis, in which case you'll owe tax only on the plan's earnings. Or you can buy it within an IRA and can get an upfront tax deduction, but the entire annuity would be taxable when you take withdrawals.

Littell himself invested in a deferred income annuity to create an income stream for life. "It's very satisfying, it felt really good building a bigger pension over time," he says.

If you're not sure when you're going to retire or even if you're going to retire, then it may not make sense. "You're also locking into a strategy that you can't get rid of," he says.

In addition, annuities are complex legal contracts, and it can be difficult to understand your rights and rewards for signing up for an annuity. You’ll want to be fully informed about what the annuity will and won’t do for you.

You'll be getting bond-like returns and you lose the possibility of getting higher returns in the stock market in exchange for the guaranteed income. Since payments are for life, you also get more payments (and a better overall return) if you live longer.

"People forget that these decisions always involve a trade-off," Littell says.

6. The Federal Thrift Savings Plan

The Thrift Savings Plan (TSP) is a lot like a 401(k) plan on steroids, and it’s available to government workers and members of the uniformed services.

Participants choose from five low-cost investment options, including a bond fund, an S&P 500 index fund, a small-cap fund and an international stock fund — plus a fund that invests in specially issued Treasury securities.

On top of that, federal workers can choose from among several lifecycle funds with different target retirement dates that invest in those core funds, making investment decisions relatively easy.

Federal employees can get a 5 percent employer contribution to the TSP, which includes a 1 percent non-elective contribution, a dollar-for-dollar match for the next 3 percent and a 50 percent match for the next 2 percent contributed.

“The formula is a bit complicated, but if you put in 5 percent, they put in 5 percent,” says Littell. “Another positive is that the investment fees are shockingly low – four-hundredths of a percentage point.” That translates to 40 cents annually per $1,000 invested – much lower than you’ll find elsewhere.

As with all defined contribution plans, there’s always uncertainty about what your account balance might be when you retire.

You still need to decide how much to contribute, how to invest, and whether to make the Roth election. However, it makes a lot of sense to contribute at least 5 percent of your salary to get the maximum employer contribution.

7. Cash-balance plans

Cash-balance plans are a type of defined benefit, or pension plan, too.

But instead of replacing a certain percentage of your income for life, you are promised a certain hypothetical account balance based on contribution credits and investment credits (e.g., annual interest). One common setup for cash-balance plans is a company contribution credit of 6 percent of pay plus a 5 percent annual investment credit, says Littell.

The investment credits are a promise and are not based on actual contribution credits. For example, let's say a 5 percent return, or investment credit, is promised. If the plan assets earn more, the employer can decrease contributions. In fact, many companies that want to shed their traditional pension plan convert to a cash-balance plan because it allows them better control over the costs of the plan.

It still provides a promised benefit, and you don't have to contribute anything to it. "There's a fair amount of certainty in how much you're going to get," says Littell. Also, if you do decide to switch jobs, your account balance is portable so you'll get whatever the account is worth on your way out the door of your old job.

If the company changes from a generous pension plan to a cash-balance plan, older workers can potentially lose out, though some companies will grandfather long-term employees into the original plan. Also, the investment credits are relatively modest, typically 4 percent or 5 percent. "It becomes a conservative part of your portfolio," says Littell.

The date you retire will impact your benefit, and working longer is more advantageous. "Retiring early can truncate your benefit," says Littell.

Also, you'll get to choose from a lump sum or an annuity form of benefit. When given the option between a $200,000 lump sum or a monthly annuity check of $1,000 for life, “too many people,” choose the lump sum when they'd be better off getting the annuity for life, says Littell.

8. Cash-value life insurance plan

Some companies offer cash-value life insurance plans as a benefit.

There are various types: whole life, variable life, universal life and variable universal life. They provide a death benefit while at the same time building cash value, which could support your retirement needs. If you withdraw the cash value, the premiums you paid – your cost basis – come out first and are not subject to tax.

"There are some similarities to the Roth tax treatment, but more complicated,” says Littell. “You don't get a deduction on the way in, but if properly designed, you can get tax-free withdrawals on the way out."

It addresses multiple risks by providing either a death benefit or a source of income. Plus, you get tax deferral on the growth of your investment.

"If you don't do it right, if the policy lapses, you end up with a big tax bill," says Littell. Like other insurance solutions, once you buy it, you are more or less locked into the strategy for the long term. Another risk is that the products don't always perform as well as the illustrations might show that they will.

These products are for wealthier people who have already maxed out all other retirement savings vehicles. If you've reached the contribution limits for your 401(k) and your IRA, then you might consider investing in this type of life insurance.

9. Nonqualified deferred compensation plans (NQDC)

Unless you're a top executive in the C-suite, you can pretty much forget about being offered an NQDC plan . There are two main types: One looks like a 401(k) plan with salary deferrals and a company match, and the other is solely funded by the employer.

The catch is that most often the latter one is not really funded. The employer puts in writing a "mere promise to pay" and may make bookkeeping entries and set aside funds, but those funds are subject to claims by creditors.

The benefit is you can save money on a tax-deferred basis, but the employer can't take a tax deduction for its contribution until you start paying income tax on withdrawals.

They don't offer as much security, because the future promise to pay relies on the solvency of the company.

"There's some risk that you won't get your payments (from an NQDC plan) if the company has financial problems," says Littell.

For executives with access to an NQDC plan in addition to a 401(k) plan, Littell's advice is to max out the 401(k) contributions first. Then if the company is financially secure, contribute to the NQDC plan if it's set up like a 401(k) with a match.

Virtually all retirement plans offer a tax advantage, whether it's available upfront during the savings phase or when you're taking withdrawals. For example, traditional 401(k) contributions are made with pre-tax dollars, reducing your taxable income. Roth 401(k) plans, in contrast, are funded with after-tax dollars but withdrawals are tax-free. ( Here are other key differences between the two. )

Some retirement savings plans also include matching contributions from your employer, such as 401(k) or 403(b) plans, while others don’t. When trying to decide whether to invest in a 401(k) at work or an individual retirement account (IRA), go with the 401(k) if you get a company match – or do both if you can afford it.

If you were automatically enrolled in your company's 401(k) plan, check to make sure you’re taking full advantage of the company match if one is available.

And consider increasing your annual contribution, since many plans start you off at a paltry deferral level that is not enough to ensure retirement security. Roughly half of 401(k) plans that offer automatic enrollment, according to Vanguard, use a default savings deferral rate of just 3 percent. Yet T. Rowe Price says you should “aim to save at least 15 percent of your income each year.”

If you're self-employed, you also have several retirement savings options to choose from. In addition to the plans described below for rank-and-file workers as well as entrepreneurs, you can also invest in a Roth IRA or traditional IRA , subject to certain income limits, which have smaller annual contribution limits than most other plans. You also have a few extra options not available to everyone, including the SEP IRA, the SIMPLE IRA and the solo 401(k) .

In many cases, you simply won’t have a choice of retirement plans. You’ll have to take what your employer offers, whether that’s a 401(k), a 403(b), a defined-benefit plan or something else. But you can supplement that with an IRA, which is available to anyone regardless of their employer.

Here’s a comparison of the pros and cons of a few retirement plans.

Employer-offered retirement plans

Defined-contribution plans such as the 401(k) and 403(b) offer several benefits over a defined-benefit plan such as a pension plan:

  • Portability: You can take your 401(k) or 403(b) to another employer when you change jobs or even roll it into an IRA at that point. A pension plan may stick with your employer, so if you leave the company, you may not have a plan.
  • Potential for higher returns: A 401(k) or 403(b) may offer the potential for much higher returns because it can be invested in higher-return assets such as stocks.
  • Freedom: Because of its portability, a defined-contribution plan gives you the ability to leave an employer without fear of losing retirement benefits.
  • Not reliant on your employer’s success: Receiving an adequate pension may depend a lot on the continued existence of your employer. In contrast, a defined-contribution plan does not have this risk because of its portability.

While those advantages are important, defined-benefit plans offer some pros, too:

  • Income that shouldn’t run out: One of the biggest benefits of a pension plan is that it typically pays until your death, meaning you will not outlive your income, a real risk with 401(k), 403(b) and other such plans.
  • You don’t need to manage them: Pensions don’t require much of you. You don’t have to worry about investing your money or what kind of return it’s making or whether you’re properly invested. Your employer takes care of all of that.

So those are important considerations between defined-contribution plans and defined-benefit plans. More often than not, you won’t have a choice between the two at any individual employer.

Retirement plans for self-employed or small business owners

If you’re self-employed or own a small business, you have some further options for creating your own retirement plan. Three of the most popular options are a solo 401(k), a SIMPLE IRA and a SEP IRA, and these offer a number of benefits to participants:

  • Higher contribution limits: Plans such as the solo 401(k) and SEP IRA give participants much higher contribution limits than a typical 401(k) plan.
  • The ability to profit share: These plans may allow you to contribute to the employee limit and then add in an extra helping of profits as an employer contribution.
  • Less regulation: These retirement plans typically reduce the amount of regulation required versus a standard plan, meaning it’s easier to administer them.
  • Investible in higher-return assets: These plans can be invested in higher-return assets such as stocks or stock funds.
  • Varied investment options: Unlike a typical company-administered retirement plan, these plans may allow you to invest in a wider array of assets.

So those are some of the key benefits of retirement plans for the self-employed or small business owners.

With some of these retirement plans (such as defined benefit and defined contribution plans), you’ll have access to the plan through your employer. So if your employer doesn’t offer them, you really don’t have that option at all. But if you’re self-employed (or even just running a side gig) or earn any income, then you have options to set up a retirement plan for yourself.

First, you’ll need to determine what kind of account you’ll need. If you’re not running a business, then your option is an IRA, but you’ll need to decide between a traditional and a Roth IRA .

If you do have a business – even a one-person shop – then you have a few more options, and you’ll need to come up with the best alternative for your situation.

Then you can contact a financial institution to determine if they offer the kind of plan you’re looking for. In the case of IRAs, almost all large financial institutions offer some form of IRA, and you can quickly set up an account at one of the major online brokerages .

In the case of self-employed plans, you may have to look a little more, since not all brokers have every type of plan, but high-quality brokers offer them and often charge no fee to establish one.

Many workers have both a 401(k) plan and an IRA at their disposal, so that gives them two tax-advantaged ways to save for retirement, and they should make the most of them. But it can make sense to use your account options strategically to really max out your benefits.

One of your biggest advantages is actually an employer who matches your retirement contributions up to some amount. The most important goal of saving in a 401(k) is to try and max out this employer match. It’s easy money that provides you an immediate return for saving.

For example, this employer “match” will often give you 50 to 100 percent of your contribution each year, up to some maximum, perhaps 3 to 5 percent of your salary.

To optimize your retirement accounts, experts recommend investing in both a 401(k) and an IRA in the following order:

  • Max out your 401(k) match: The 401(k) is your top choice if your employer offers any kind of match. Once you receive this maximum free money, consider investing in an IRA.
  • Max out your IRA: Turn to the IRA if you’ve maxed out your 401(k) match or if your employer doesn’t offer a 401(k) plan or a match. Experts favor the Roth IRA because of all its perks.
  • Then max out your 401(k): If you’ve maxed out your IRA and you can save more, you can turn back to your 401(k) and add more up until the maximum annual contribution.

In any case, the best strategy to secure your financial future is to top out your accounts, saving the maximum legal amounts each year. The earlier you start investing for your future, the more your money will be able to compound, and these tax advantages can help you amass money even more quickly because you won’t have the extra drag from taxes.

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Today's workers—unless they've been in the workforce a very long time with the same employer or work in certain public sector or union organizations—will never know what a retirement pension , or defined benefits plan, looks like in real life. That's because these retirement plans are going the way of the dinosaur, replaced by the defined contribution plan , typically a 401(k) account.  

What's the difference? A pension plan pays a guaranteed amount each month, based on salary and years of service. A 401(k) plan, on the other hand, depends on employee and sometimes employer contributions and reflects the performance of the investments within them.

While the vast majority of businesses now offer 401(k) plans for retirement, there's a great deal of difference between the most and least generous among them. For example, some employers offer a generous employer match and even additional contributions based on salary. Others offer a better mix of investment options with lower fees. It's a good idea to look at the fine print to see what you're really getting when you enroll.

If you are wondering which companies do the best job setting up their employees for financial security in retirement, take a look at our list for the best retirement plans.

1. ConocoPhillips (COP)

ConocoPhillips has a generous employee matching program—it automatically pays a 6% match after you invest 1% of your income . In addition, the company offers a discretionary additional match of between 0% and 6% based on company performance and other factors including employee age. The goal is a 9% total match.  

In addition, investment options are broad, including a mix of stock , bond  and international index funds . Vesting is immediate at 100%.   Enrollment is voluntary, but employees must contribute a minimum of 1% to receive the company's contributions.  

2. The Boeing Company (BA)

Boeing transitioned all non- union employees from a pension to a 401(k) retirement plan in 2016, and the results have been amazing. With over $47 billion in assets, it is the second-largest plan in the country. The company matches 75% of the first 8% of employees' contributions.    

There's also a discretionary contribution of between 3% and 5% per year based on the employee's age.   Boeing automatically enrolls employees in the plan, and there is a broad selection of stock, bond, and international index funds to choose from.  

3. Amgen Inc. (AMGN)

Amgen is another company with one of the best retirement plans, and is one of the more generous companies when it comes to employer contributions—it makes a 5% core contribution upfront, whether or not the employee makes a contribution to the plan.  

In addition, the company matches employees' contributions up to 5% of their salary for a total of 10%.   There's also an employee stock purchase plan .  

Amgen's funds include a broad mix of stock, bond and international index funds. Employees are 100% vested immediately and are automatically enrolled in the plan.

4. Philip Morris International Inc. (PM)

You may have qualms about working for the king of tobacco, but Philip Morris does its best to reward and retain top talent. In addition to matching the first 5% of employee contributions, the company adds an additional 7% of eligible employee compensation for a total of up to 12%.

There are no bond funds to select, but a broad range of stock and international index funds are available. Eligible employees are automatically enrolled and are 100% vested immediately.  

5. Citigroup Inc. (C)

This banking giant does a good job with its retirement plans, matching 100% of the employee's first 6% of contributions.   There's an additional 2% added in, but it's important to note that Citigroup makes its contributions in a lump sum at or after year-end and not at the same regular intervals that employee contributions are made.   Fund options include stock and international index funds—no bond funds are available. Enrollment is automatic, and employees are fully vested immediately.  

Society for Human Resource Management. " From Defined Benefit to Defined Contribution: A Systematic Approach to Transitioning Retirement Plans ."

ConocoPhillips. " Savings Plan ," Page 6.

ConocoPhillips. " Savings Plan ," Page 8.

Boeing. " Boeing Scores 2nd in Bloomberg's 401(k) Rankings ."

Employee Benefit Plans. " Boeing’s retirement plan soars to new heights thanks to asset size, plan design ."

Boeing. " Supplemental Benefit Plan 2016 Edition ," Page 8.

Amgen. " 401(k) Plan ."

Amgen. " Employee Stock Purchase Plan ."

Amgen. " Retirement and Savings Plan Summary Plan Description ," Page 1.

Citigroup. " Citi Retirement Savings Plan Prospectus and Summary Plan Description ," Page 1.

Citigroup. " Citi Retirement Savings Plan Prospectus and Summary Plan Description ," Pages 18-19.

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The best retirement plans of 2023

Maryalene LaPonsie

Hannah Alberstadt

Hannah Alberstadt

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

Updated 4:07 a.m. ET Sep. 1, 2023

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  • Various retirement plans exist for employees, the self-employed and small-business owners.
  • Most people are eligible for more than one retirement plan.
  • Retirement plans generally offer tax advantages. 

Retirement is the end goal for most workers, but you can’t quit your job unless you have a source of income. While Social Security will pay for some expenses, the government says these benefits will cover only about 40% of your pre-retirement income.

In the past, many companies offered pensions that provided lifetime income to loyal employees. Now, pensions have all but disappeared, and most workers need to rely on their savings to fill gaps in their budgets.

Fortunately, several retirement plans are available, many of which offer attractive tax incentives or generous employer matches. What’s more, most workers don’t have to settle for one plan and can open multiple accounts, depending on their employment situations.

Best retirement plans of 2023

American workers have no shortage of options when it comes to selecting the best retirement plan. 

“You’re talking about an embarrassment of riches,” says Andrew Meadows, senior vice president of HR, brand and culture for Ubiquity Retirement + Savings, a 401(k) provider.

Plans exist for employees, self-employed individuals and small-business owners. Options within each category allow people to receive immediate tax deductions or set aside money for tax-free withdrawals in the future. The best retirement plans also offer various investment options with low fees. 

Datalign Advisory

Datalign Advisory

Employer-sponsored retirement plans

Employer-sponsored retirement plans are some of the best-known options, and if you are an employee — meaning you receive a W-2 at tax time — you likely have access to one of them.

These accounts can be a convenient way to save for retirement since payroll deductions fund them. Plus, many employers match a portion of employee contributions.

“You want to be sure you put enough in to qualify for whatever your employer is matching,” says Stuart Chamberlin, founder and owner of advisory firm Chamberlin Financial in Boca Raton, Florida.

Traditional 401(k)

Traditional 401(k)s are the most common retirement plans private companies offer employees.

Employee contributions to a traditional 401(k) are tax-deductible. You can access the money without penalty once you reach age 59½, and withdrawals are taxed as regular income. You must start taking required minimum distributions at age 73, meaning you cannot avoid taxes forever.

You can contribute up to $22,500 to a 401(k) plan in 2023. Savers age 50 or older can contribute an additional $7,500.

Roth 401(k)

A Roth 401(k) works like a traditional 401(k), except the tax benefits are different.

Because Roth accounts are funded with after-tax dollars, employee contributions are not tax-deductible. The benefit is that the money grows tax-free and can be withdrawn tax-free in retirement. If you make a withdrawal before age 59½ and before you have held the account for five years, some of it may be subject to income tax and a penalty.

Roth 401(k) contribution limits are the same as traditional 401(k) contribution limits.

A 403(b) , also known as a tax-sheltered annuity, works like a 401(k) and may be offered in traditional and Roth versions. Typically, 403(b) plans are available to employees of public schools and certain tax-exempt organizations.

One unique provision of 403(b) plans is that workers with at least 15 years of service can make additional catch-up contributions, which may be worth up to $3,000. 


Employees of state and local governments and certain tax-exempt nongovernmental entities may be able to contribute to 457(b) plans. These accounts work like 401(k)s and can be found in traditional and Roth varieties.

Like 403(b)s, 457(b)s have a unique catch-up feature. Workers may be able to contribute up to twice the annual employee limit during the last three years before their normal retirement age. 

Thrift savings plan

The thrift savings plan is a retirement plan for federal government employees and uniformed members of the armed forces. It is comparable to a 401(k) account, with similar provisions and contribution limits. 

Individual retirement plans

Individual retirement arrangements, or IRAs, “have the lowest barrier to entry,” Meadows says.

You generally can open an IRA as long as you have earned income, even if you have a 401(k) plan or another workplace retirement account. But note that income limits may apply to deducting traditional IRA contributions and contributing to Roth IRAs.

Traditional IRA

Like a traditional 401(k), a traditional IRA offers an immediate tax deduction on contributions. Withdrawals after age 59½ are subject to regular income tax. Early withdrawals are subject to income tax and a 10% penalty. Required minimum distributions must begin at age 73.

You can contribute up to $6,500 to IRAs in 2023. Savers age 50 or older may make an additional $1,000 in catch-up contributions.

Your contributions may not be tax-deductible if you or your spouse is covered by a retirement plan at work and you exceed certain income limits. For 2023, the ability to deduct contributions begins to phase out at modified adjusted gross incomes above $73,000 for single filers and $116,000 for married couples filing jointly.

Roth IRAs don’t offer tax deductions on contributions, but withdrawals in retirement are generally tax-free. Further, because you’ve already paid taxes on your Roth IRA contributions, you can withdraw them anytime tax- and penalty-free. Early withdrawals of your earnings may be subject to income tax and a 10% penalty. 

Roth IRAs share the same contribution limits as traditional IRAs, but high earners are excluded from funding these plans. For 2023, the ability to contribute to a Roth IRA begins to phase out at MAGIs of $138,000 for single filers and $218,000 for married couples filing jointly. At incomes of $153,000 and $228,000, respectively, the opportunity to contribute to a Roth IRA is eliminated.  

Spousal IRA

A spousal IRA refers to the ability of a working spouse to open an IRA on behalf of a nonworking spouse. In this way, stay-at-home parents or other spouses without earned income can have their own IRAs with which to save for retirement.

Spousal IRAs can be traditional or Roth accounts and are subject to the same contribution and income limits as other IRAs. To open a spousal IRA, a couple must file their tax return jointly.

Rollover IRA 

A rollover IRA is a way to move money from one retirement account to another. For example, if you leave a job, you can roll over money from your 401(k) to an IRA rather than leave it in place.

You can opt for a direct rollover or an indirect rollover. With a direct rollover, the funds are transferred from the 401(k) administrator to the IRA administrator. With an indirect rollover, you receive a distribution from the 401(k) and then deposit the funds into the IRA. If you fail to deposit the full amount into the IRA within 60 days, it may be subject to both income taxes and a 10% penalty.

There is no limit on how much you can roll over. Note that rolling over into an account with a different tax treatment — from a traditional to a Roth, for instance — counts as a conversion and has tax implications.

Retirement plans for small-business owners and the self-employed 

One drawback of IRAs compared to employer-sponsored retirement plans is the low annual contribution limit. But if you are self-employed or a small-business owner, you have other options with higher limits. Becoming eligible for these plans may be easier than you think.

“If you have a side hustle and self-employment income, you absolutely have the ability to start your own retirement plan,” says Nathan Boxx, director of retirement plan services for financial advisory firm Fort Pitt Capital Group in Pittsburgh.

Whether you work for yourself or have a team of employees, the following accounts could be good options. 

Any self-employed individual or employer can open a SEP IRA , and workers can contribute the lesser of 25% of their annual compensation or $66,000 per year. That puts a SEP IRA in line with a 401(k) plan in terms of contributions. But you can’t make catch-up contributions to a SEP account.

There is no Roth SEP IRA option, so your contributions will be tax-deductible. Withdrawals in retirement will be subject to regular income tax, and you’ll also need to start taking RMDs at age 73.

If you like the idea of having some tax-free money available in retirement, there is no reason you can’t also open a Roth IRA. The IRS allows self-employed workers and business owners to contribute to both.

The SIMPLE IRA is what Boxx calls the “quick and dirty” option for small-business retirement plans. It is available to businesses with fewer than 100 workers and has few filing requirements.

“The trade-off is lack of flexibility,” Boxx says. You may not have the same plan or investment options that other accounts offer. SIMPLE IRAs also have lower contribution limits than 401(k)s.

In 2023, a worker can contribute up to $15,500 to a SIMPLE IRA. Savers age 50 or older can make $3,500 in catch-up contributions. All contributions are tax-deductible, and withdrawals in retirement are taxed as regular income. RMDs must be taken starting at age 73. 

Payroll deduction IRA

Payroll deduction IRAs can be traditional or Roth and have the same contribution limits as those accounts. The main difference is they are funded through payroll deductions.

These accounts can be an attractive option for small-business owners who would like to help their workers save for retirement but don’t want the expense that comes with creating a 401(k) plan. 

Solo 401(k) 

Also known as one-participant 401(k)s, solo 401(k)s allow business owners with no employees or self-employed individuals to open an employer-sponsored plan for themselves and their spouses.

The reporting rules make these accounts more complex than some of the other options. On the other hand, they have significantly higher contribution limits.

As an employee, you can make elective deferrals of up to $22,500 in 2023. Savers age 50 or older can contribute an additional $7,500. In addition, as an employer, you can make a profit-sharing contribution of up to 25% of your compensation from the business. Combined, the maximum solo 401(k) contribution is $66,000 in 2023. 

Solo 401(k)s may be opened as traditional or Roth accounts.


Why is having a retirement plan important?

Most people understand the value of having money set aside for retirement, but it may not be obvious why you should use a retirement plan. After all, you could invest the money in a regular brokerage account , put it in certificates of deposit or leave it in your savings account.

A retirement plan makes more sense for several reasons:

  • Retirement plans offer tax incentives — either deductions for contributions or tax-free withdrawals in retirement.
  • Your employer may match a portion of your contributions. That’s essentially free money to boost your savings.
  • Retirement plans are subject to certain standards and protections by law.

“Retirement money is sheltered from creditors up to a certain threshold,” Boxx says. That is one example of the type of protection your money gets when deposited in a retirement plan.

How to start investing in your retirement

The earlier you begin saving, the more likely you are to be financially secure in retirement. It isn’t hard to open a retirement account either.

If you work somewhere that offers employer-sponsored retirement accounts, contact your human resources office to start making contributions. Most plans let you choose from several investment options, and many now have target-date funds, which make it simple to invest based on your expected retirement date.

IRAs and other plans can be opened online or in person at many banks and brokerage firms. For instance, Ubiquity Retirement + Savings offers solo 401(k) plans, while Chase, Charles Schwab and Fidelity all have IRAs.   

How to choose the best retirement plan for you

If you have an employer-sponsored plan with a match, start there. You want to contribute enough to that plan to get the full match. After that, you can consider other options.

Here are some questions to ask yourself:

  • Do I do any contract work that would make me eligible for a small-business retirement plan?
  • How much do I expect to be able to contribute each year?
  • Do I want a tax deduction now, or would I rather have tax-free money in retirement?

Before you jump into any account, be sure to read the fine print. “What fees are you paying?” Meadows asks. Those fees include the expense ratios for specific investments and the costs to administer the plan.

An accountant or financial advisor can help you weigh your options and select the best retirement plan for your needs. 

That depends on your unique circumstances. While Fidelity Investments suggests you save 10 times your income by age 67, you may need more or less to retire comfortably.

When determining how much money you’ll need, consider the following:

  • Whether you will have debt payments in retirement.
  • The cost of living in your area.
  • Your expected lifestyle.
  • How you will fill your time.
  • Your expected lifespan.

Each account has its pros and cons. IRAs typically offer more investment options, but they may come with more fees. With a 401(k) account, you can contribute significantly more, and your plan administrator is a fiduciary, meaning they are required to work in your best interest. Talk to a trusted financial advisor to decide which is right for you. 

Yes. “The IRS always gets theirs at the end,” Chamberlin says.

The difference is when you pay those taxes. Roth accounts are taxed upfront since you fund them with after-tax dollars. With a traditional account, the money isn’t taxed until you make withdrawals in retirement. If you die with money in a traditional account, your heirs will pay the taxes on the remaining amount.

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy . The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Maryalene LaPonsie

Maryalene LaPonsie has been writing professionally for nearly 25 years and specializes in personal finance, retirement, investing and education topics. In addition to USA TODAY Blueprint, her work has been featured on Forbes Advisor, U.S. News & World Report, Money Talks News, MSN and elsewhere on the web.

Hannah Alberstadt is the deputy editor of investing and retirement at USA TODAY Blueprint. She was most recently a copy editor at The Hill and previously worked in the online legal and financial content spaces, including at Student Loan Hero and LendingTree. She holds bachelor's and master's degrees in English literature, as well as a J.D. Hannah devotes most of her free time to cat rescue.

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Companies With Great Retirement Plans

These companies provide a generous 401(k) match to employees.

Companies With Great 401(k) Matches

company retirement plan types

With a dollar-for-dollar arrangement, you can expect your employer to contribute the same amount as you do, up to a point. (Getty Images)

A 401(k) plan is one of the most convenient ways to stash away dollars for retirement. Funds contributed to the account can be deducted from your taxable income that year, and the money can be put in investments with the goal of growing your savings over time. But perhaps the biggest motivator to contribute to a 401(k) plan is an employer's 401(k) match.

Many firms offer to match employee contributions to the 401(k) plan . Typically the employer contributes a certain amount to the employee’s 401(k) plan based on formulas and policies set by the company.

The Typical 401(k) Match

When an employer decides to offer a 401(k) plan for its workers, there are different types of plans on the market to choose from. The arrangement provided in these plans can vary from company to company. Two common forms of matching are partial matches or dollar-for-dollar matches.

With partial matches, the idea is that when you contribute to the plan, your employer will also put in a portion of that amount, based on a formula. “Partial matches are when your employer will match part of the money you put into your 401(k), up to a certain amount,” says Scott Schleicher, a financial planning specialist group manager and senior financial advisor at Personal Capital in Denver, Colorado.

Many companies opt for the partial match in their plan. "The typical 401(k) match is 50 cents on the dollar up to 6% of the employee's pay," says Skeff Bisset, director of financial professional development at Wealth Continuum Group in Wilton, Connecticut. For instance, your employer might offer a partial match of 50% of what you contribute, up to 6% of your salary. If you earn $100,000 a year, the portion of your salary that is eligible for a match is $6,000, which is 6% of your salary. Since the company offers to match 50% of your contribution, you could expect the employer to contribute $3,000.

With a dollar-for-dollar arrangement, you can expect your employer to contribute the same amount as you do, up to a point. “An example of dollar-for-dollar is up to 5% of your salary,” Schleicher says. For instance, perhaps you earn $100,000 a year and put 5% of your salary in a 401(k), which is $5,000. Your employer would contribute another $5,000. If you saved 2% of your salary in the 401(k), which amounts to $2,000, the company will also put in another $2,000. If you save more, such as 6% of your pay (which is $6,000), the company will only put in 5% (which is $5,000), per the policy.

Generous Employer 401(k) Matches

Some companies choose to offer higher matches to recruit and reward employees. Here are examples of several companies with generous employer 401(k) matches:

  • Honeywell International.

The company will match dollar-for-dollar the contributions of nonunion workers, up to 10% of their base and incentive pay. The employer contributions are fully vested immediately. Beginning in 2023, student loan debt payments made by U.S. employees may also qualify for an employer 401(k) match.

Employees who have a 401(k) plan through Citigroup can expect a dollar-for-dollar match up to 6% of their eligible pay each year. Eligibility for the matching contribution begins after working at Citi for a year. If an employee contributes $6 of eligible pay, the company will also contribute $6, for a total of $12 to invest. This continues until the employee’s contributions surpass 6% of their eligible pay for the year. Citi additionally provides a fixed contribution of up to 2% of eligible pay, regardless of whether the employee contributes to the plan, for workers who meet certain criteria.

Honeywell International

For workers with a 401(k) plan, the company matches the first 8% of eligible pay at a rate of 87.5%. This continues up to 7% of base salary. The match is made in January of each year, and applies to the contributions from the previous calendar year. Honeywell’s matching contributions vest after three years of service. To be eligible for the match, employees must participate in the plan and contribute to their account. They will also need to be employed through December 15 to receive a match for the corresponding year.

Through the 401(k) plan, employees can receive a $0.50 match for every pre-tax or Roth dollar saved. The match continues until the worker has reached the IRS contribution limit. In 2023, those enrolled in a 401(k) plan can place up to $22,500 in the account, or $30,000 for those age 50 and older. Both the match and contribution are vested from the first day.

Qualcomm, which develops technologies and products for mobile devices and wireless communications, has structured its 401(k) plan so that employees at the lowest end of the pay scale can obtain a high level of matching. An employee receives a match of 100% up to the first $1,500 that is contributed to the plan. For the next $1,500 saved by an employee, the company provides a 50% match. A 33% match is offered for the following $7,500. After that amount, employees receive a 10% match on their contributions. This continues up to the IRS contribution limit.

Workers with a 401(k) plan through Southwest can expect to double their retirement savings up to a point. When workers contribute to the plan, Southwest will match the contributions dollar-for-dollar up to 9.3% of an employee’s eligible earnings. Employees can also roll over funds from their previous employer.

How to Max Out Your 401(k) in 2023

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5 Different Types of Retirement Plans You Need to Know About

Woman Researching Types Of Retirement Plans 1024x682

You’re probably familiar with terms like 401(k) or Roth IRA, which are types of retirement plans. You might be less sure about the particular characteristics of these accounts or how they follow specific rules laid out by the Internal Revenue Service (IRS) to protect your retirement funds.

It can get even more confusing because some of these terms overlap. For example, a 401(k) retirement plan is a tax-deferred retirement plan, a defined contribution plan and a qualified retirement plan simultaneously. 

Let’s look at some common types of retirement plans to help you gain greater confidence when discussing your retirement savings. 

Tax-deferred retirement plan

A tax-deferred retirement plan lets you save for the future and postpone paying taxes until the money is withdrawn in retirement. Any interest you earn on your contributions is tax-deferred until retirement, when you may be in a lower tax bracket and have to pay less in taxes overall.

Many tax-deferred accounts also have the added benefit of lowering your taxable income in the year you made contributions, since you can make contributions with pre-tax money. This will hopefully leave you with a smaller tax bill next April. 

Tax-deferred retirement plans can include:

  • Employer-sponsored retirement plans such as 401(k), 403(b) and 457 accounts
  • Traditional Individual Retirement Accounts (IRAs)
  • Qualified and non-qualified retirement plans
  • Tax-deferred annuities
  • Health savings accounts (HSAs)

Pros of this type of account

It reduces taxable income. Tax-deferred accounts reduce your gross income by the amount you contribute. This provides a break on your income taxes for the year in which you contribute. 

Some accounts have high contribution limits. While each plan has different contribution limits and rules, you can generally save more in a tax-deferred account than in tax-free retirement accounts such as a Roth IRA. 

Employers can match contributions. Employer-sponsored, tax-deferred plans often allow employers to contribute up to a certain percentage of the employee contribution to employee accounts. This is essentially free money for the account holder.

Cons of this type of retirement plan

There are early withdrawal penalties. Generally, you can’t withdraw money from a tax-deferred account before age 59½ without receiving a 10% penalty and paying taxes on the withdrawal. There are some exceptions to the 10% penalty, such as a first-time home purchase, qualified college expenses or birth or adoption expenses, but you’ll still have to pay taxes on the withdrawal.

You have to take Required Minimum Distributions (RMDs). Depending on the account, you may need to take RMDs starting at age 72 (or age 73 if you turned 72 after Dec. 31, 2022). RMDs are minimum amounts of money that account owners must withdraw annually so they don’t avoid paying taxes on their retirement funds forever. 

Defined contribution retirement plan

A defined contribution retirement plan is an employer-sponsored retirement account that allows employees to save for retirement. Employers can also match employee contributions up to a percentage of the employee’s salary under this type of retirement plan.

Many defined contribution plans are tax-deferred, but some defined contribution plans, such as a Roth 401(k), allow you to save after-tax money for retirement. You don’t get the upfront tax break like you would with a tax-deferred account. However, since you’ve already paid taxes on your contributions, you won’t pay taxes on distributions or the interest earned as long as you meet specific requirements.

Examples of a defined contribution plan are: 

  • Employer-sponsored plans like a traditional 401(k), 403(b) or 457
  • Roth 401(k)s
  • Profit sharing plans
  • Employee stock ownerships (ESOPs)

It has tax advantages. You can save pre-tax or after-tax money depending on the defined contribution account type. While each type of savings plan has benefits and drawbacks, having pre- and after-tax accounts in your retirement portfolio can help you better prepare for retirement. 

Employees are in charge of their money. As the account owner, the employee can choose how much to contribute, up to the plan’s limits, and how to invest their money.

There are no guarantees. With defined contribution plans, the burden of saving is on the employee. There are no guarantees the investments in your account will grow as much as needed to fund your retirement. You may have to work longer or live on less money in retirement depending on how your investments perform.

Defined benefit retirement plan

Unlike defined contribution plans, a defined benefit retirement plan provides a fixed, pre-established amount of money, or benefit, for employees at retirement. Employers are the primary contributors and receive a tax deduction on these plans, although some may require employees to contribute. 

Defined benefit plans are also called pensions. Employees can receive a single lump sum when they first retire or choose a regular monthly payment that generally lasts for the rest of their life. 

The amount an employee receives is calculated based on length of employment and salary history. This type of retirement plan provides a predictable, reliable retirement income, though they have become much less common in recent decades.

Defined benefit plans include: 

  • Pension plans

You’ll have guaranteed income in retirement. As an employee, a defined benefits plan offers a set dollar amount in retirement that you can count on. You don’t have to save it yourself, and your benefit amount is generally protected, no matter what happens in the greater economy. 

Employers receive tax deductions for contributions. Employers contribute to an employee’s defined benefit plans and may receive a tax deduction on their tax returns for the amount they contribute. 

Employees have limited control. As an employee, you don’t have any say in how the money in your plan is invested or how much you’ll receive when you retire.

It’s complex to set up and maintain. Defined benefit plans require a lot of administrative oversight and insurance to guarantee the company can continue to pay retiree benefits, even if the stock market crashes. Because of this, defined benefit plans are expensive and time-consuming to set up, likely the main reason it’s hard to find a pension plan outside of government entities. 

Qualified retirement plan

A qualified retirement plan is another employer-sponsored retirement account, but it can be either a defined contribution or a defined benefit plan. What makes a plan “qualified” is if it meets criteria set by the IRS and the Employee Retirement Income Security Act (ERISA). ERISA, a federal law enacted in 1974, sets minimum standards for most voluntarily established retirement plans. 

Qualified retirement plans can include:

  • Employer-sponsored plans like 401(k), 403(b), 457 accounts
  • Profit sharing

There are ax benefits for employees and employers. A qualified retirement account offers certain tax benefits to employees and employers. Employers can take tax deductions on contributions to employee accounts, up to certain limits. Employees can make either tax-deferred contributions (to a traditional 401(k) or other tax-deferred plans) or after-tax contributions (to a Roth 401(k) or different employer-sponsored Roth account).

There are protections for plan participants. ERISA requires that employers provide plan participants with information about plan features and funding, minimum standards for participating and vesting and fiduciary responsibility to those who set up and manage the retirement plans. 

Most IRA accounts are not eligible. Since being an employer-sponsored retirement plan is a requirement to be a qualified plan, most IRAs aren’t eligible. However, there are exceptions for the SEP and SIMPLE IRAs since employers can set up and contribute to both plans for their employees. Even though they aren’t formally qualified, traditional and Roth IRAs have many of the same tax benefits as qualified accounts. 

Non-qualified retirement plan

Although traditional and Roth IRAs are technically non-qualified retirement plans, the phrase usually refers to plans primarily used to reward or incentivize top executives in a company. Non-qualified retirement plans don’t have to adhere to the rules of ERISA. Plus, they don’t usually have the same tax advantages as a qualified retirement plan.

Most companies provide qualified retirement plans like 401(k)s as part of their benefits package to all employees. Since high-earners may max out their contribution limits to qualified plans or be ineligible for other plans based on income limits, employers provide non-qualified retirement plans as an additional bonus and a way to retain high-level employees.

Non-qualified retirement plans include:

  • Deferred-compensation plans
  • Executive bonus plans
  • Split-dollar life insurance plans
  • Group carve-out plans

It’s a retention tool for high-performing employees. These plans can entice high-performing individuals to join or stay with a company. 

There are some tax breaks, depending on the plan. Non-qualified plans may not have the same type of tax deductions for contributions, but many of the plans allow employees to defer taxes until they retire when they may be in a lower tax bracket. 

It’s only open to some employees. Non-qualified plans are usually only available to a few key employees who are highly compensated.

Bottom line

Understanding the essential characteristics and terminology of the different types of retirement accounts can help you manage your accounts more effectively. You likely will only need or qualify for some of these accounts. However, it’s a good idea to work with a tax or retirement professional to help you find the best funds for your specific situation. 

Want to learn more about the different types of retirement plans? Listen to our rich & REGULAR podcast about it, hosted by Kiersten and Julien Saunders, below or on  Apple Podcasts :

Photo by GaudiLab/shutterstock.com

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  • What Types of Retirement Accounts Are Available?

What Are the Types of Retirement Accounts Available to You?


  • Retirement savings accounts are specialized investment accounts designed to help individuals reach the long-term goal of funding their retirement.
  • There are many different types of retirement savings accounts available, each with its own special benefits and considerations. Of these, 401(k) plans and IRAs are among the most common.
  • Before choosing the retirement savings accounts that are best for you, consider your financial status now and craft a concrete plan for the future.

Whether you’re dreaming of a retirement spent traveling the globe, relaxing with family and friends or perfecting your favorite hobby, retirement savings accounts are your primary tool for making those dreams a reality.

Retirement savings accounts are specialized investment vehicles, usually with unique tax benefits, designed to help individuals reach the long-term goal of funding their retirement . Money deposited into a retirement account is invested into various assets — which may include mutual funds, stocks, bonds or other funds depending on the type of account — and set aside to grow until you reach retirement age.

Types of retirement savings accounts

There are many different types of retirement accounts available, each with its own special benefits and considerations. Of these, 401(k) plans and IRAs are among the most common.

What is a 401(k) plan?

401(k) plans are a type of tax-advantaged retirement account sponsored by your employer. A 401(k) allows you, the employee, to contribute a certain dollar amount or percentage of your paycheck to the account. In exchange, your employer will often match these contributions, in full or in part, as an added benefit of your job. Employees can choose from a number of investment options for the money in the account, usually a combination of stock and bond mutual funds and target-date funds.

Depending on the requirements of your plan, employer contributions may be subject to a “vesting” period . This refers to an amount of time, determined by your employer, that you must wait before you have full ownership of the matching funds. Employees are always 100% vested in their own 401(k) contributions, meaning they own those funds outright with no vesting period.

The IRS sets annual contribution limits for 401(k) plans, adjusted for inflation. Once you’ve reached age 59 ½, you can begin making penalty-free withdrawals, and you’re required to make withdrawals after the age of 72. It’s also important to note that there is a 10% penalty for any early withdrawals.

There are two primary types of 401(k) plans: Traditional and Roth . The key difference between them is when and how they are taxed. 401(k) plans — and retirement accounts in general — usually allow you to defer, reduce or eliminate any taxes you’ll pay on the money you invest.

  • Traditional 401(k) plans are funded by pre-tax income. This allows you to defer taxes on contributions and the money you earn from interest until you make a withdrawal.
  • Roth 401(k) plans , however, rely on after-tax income. As a result, any withdrawals you make during retirement, along with any earnings from interest, remain tax-free.

How do you know which one is better for you? If you anticipate you’ll be in a higher tax bracket when you retire, you might choose a Roth 401(k) so that you’ll save money during retirement by taxing your contributions at a lower rate, not your withdrawals. But if the opposite is true or if you’re currently on a tight budget and need to keep more of your income accessible, you might go for a Traditional 401(k), as your paycheck will take a smaller hit when you contribute pre-tax dollars.

What is an IRA?

An Individual Retirement Account, commonly called an IRA, is also a kind of tax-advantaged account for retirement savings. But unlike 401(k) plans, they are not employer-sponsored. Anyone with earned income can open an IRA, making them a great option for self-employed workers.

With an IRA, you also have more flexibility in how your contributions are invested. You may put money into mutual funds as you would with a 401(k), but you can also select stocks and bonds. As with 401(k) plans, there’s a 10% penalty on withdrawals made before the age of 59 ½.

There are many kinds of IRAs including SIMPLE and SEP , both of which are IRA options designed with small business owners and their employees in mind. However, the most common IRAs for individuals are Traditional and Roth .

  • Traditional IRAs are tax-deferred, meaning you don’t pay income tax on the money in the account until it’s withdrawn.
  • Roth IRAs , however, are funded by after-tax income. Therefore, the money you withdraw from the account during retirement won’t be taxed.

If you’re trying to choose between the two, think about your tax status now and your likely tax status in the future—will you save more money by paying taxes on your invested income today or during retirement?

How do 401(k) plans and IRAs differ?

A key distinction between 401(k) plans and IRAs is that only 401(k) plans are employer-sponsored. Both types of accounts have limits on yearly contributions, but 401(k) plans usually come with a higher annual limit than IRAs. On the other hand, IRAs usually offer more freedom to choose between different types of investments, while the investment options available with 401(k) plans are more limited.

Both kinds of retirement accounts are great ways to save, but you don’t necessarily have to pick between the two: it’s possible to invest in both an IRA and a 401(k) at the same time.

What are some other types of retirement savings accounts?

Although 401(k) plans and IRAs are among the most common, they are far from the only options available. Other types of retirement savings accounts include:

403(b) and 457(b) plans. Similar to 401(k) plans, 403(b) and 457(b) plans are employer-sponsored retirement savings accounts that are funded by contributions from your paycheck and may be matched by your employer. However, these plans are only offered to employees of public schools and colleges, non-profits, churches and municipal, state and federal governments. As with 401(k) plans, Traditional and Roth versions of these accounts are available.

Employee Stock Ownership Plans (ESOPs). An ESOP is a kind of profit-sharing retirement benefit that gives employees access to shares of their employer’s stock. The company uses a trust fund to buy stock, which it then allocates to individual employees.

If your employer offers an ESOP, you’ll have access to the stock when you leave the company or retire, and the employer is required to buy back the stock you own at a fair market price. There are limits to how and when you can receive distributions from your ESOP without a penalty. Normally, you must be over retirement age. Much like other types of retirement accounts, ESOPs are tax-advantaged for both the employer and the employee. However, unlike an IRA or 401(k), you don’t pay anything into the account — your employer makes contributions and you benefit.

SIMPLE and SEP IRAs. SIMPLE and SEP IRAs are retirement options geared toward sole proprietors and other small businesses:

  • SIMPLE stands for Savings Incentive Match Plan for Employees. This type of IRA is available to businesses with 1,000 employees or less and annual revenues of at least $5,000. SIMPLE IRAs allow employees to have retirement contributions deducted from their paycheck and deposited into a tax-deferred savings account. Employees can also contribute up to a certain amount directly to these accounts each year. Employers are required to match a certain amount of employee contributions similar to how they might for a 401(k). SIMPLE IRAs work much like traditional IRAs in that money is taxed only when it’s withdrawn. Account holders may also face a penalty for withdrawing funds before the age of 59 ½.  
  • SEP stands for Simplified Employee Pension. This type of IRA allows employers to set money aside in retirement accounts that they and their employees can draw on in retirement. Employers can contribute a certain amount of the employee’s pay into a tax-deferred SEP IRA, but the employee cannot make any additional contributions. However, employees are always 100% vested in their SEP IRA funds. Similar to a Traditional IRA, SEP funds are taxed only as money is withdrawn, and there may be fees for withdrawals before the age of 59 ½.  

What do I need to know before opening a retirement account?

Before choosing the retirement savings accounts that are best for you, consider your financial status now, and craft a concrete plan for the future. When will you retire? How much do you need to save to maintain your desired standard of living? What will your Social Security benefits look like? What will you do in case of an emergency? Are you likely to move into a higher or lower tax bracket later in life?

No matter how you answer these questions, the most important thing to remember is also the simplest: start saving as soon as possible. The power of compounding interest means that the sooner you start saving, the more time your money has to grow. Whether you invest in an IRA, a 401(k), an ESOP or another type of retirement savings plan, your happily retired future self will thank you.

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Why Retirees May Want to Buy an Immediate Annuity Now

Liz Weston, CFP®

Many or all of the products featured here are from our partners who compensate us. This influences which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money .

An immediate annuity is an insurance product that provides guaranteed income: You give an insurer a chunk of money, and the company gives you a stream of payments that can last for life. The payments begin within 12 months of purchase.

Now may be a good time for retirees to buy an immediate annuity, since payouts are the highest they’ve been in a decade, says Rob Williams, managing director of wealth management at Charles Schwab.

But buying an immediate annuity — also known as an income annuity or a fixed immediate annuity — is effectively irreversible, so you’ll want to choose carefully.

Why you might want to consider an immediate annuity

One of the big risks in retirement is outliving your savings . Having enough guaranteed income to cover basic expenses can give you assurance that you’ll keep a roof over your head and food in the fridge, no matter what.

A major source of guaranteed income is Social Security , and some people still have traditional pensions. If you don’t have enough guaranteed income to cover essential living costs, though, an immediate annuity could fill in the gap, says Wade Pfau, author of “Retirement Planning Guidebook.”

But immediate annuities shouldn’t be an “all or nothing” solution, Pfau says. Ideally, you also would have money invested in stocks for growth, as well as cash reserves for emergencies.

Immediate annuities can help you ride out down markets, Williams notes. The steady stream of income could help you avoid selling investments to meet living expenses, he says.

How much you can get from an immediate annuity

There are many types of annuities, and some are mind-bendingly complex. By contrast, immediate annuities are relatively straightforward: Your payout depends largely on how much you invest, your age, prevailing interest rates and the payout option you choose.

For example, a man and woman age 65 who invest $100,000 can expect a monthly check of about $535 if they choose the joint life option, where the payment continues for both lifetimes, according to Charles Schwab’s annuity income estimator. If they choose a cash refund option, the monthly check drops to about $532, but their heirs will receive any money left over if the couple dies before getting back their original investment.

That’s a relatively cheap form of insurance and could provide some reassurance to people who worry the insurance company will “win” if they die early, Williams says.

Payouts also depend on the insurer. According to the online marketplace ImmediateAnnuities.com, monthly checks for the couple could range from $513 to $565 a month for the joint life option, depending on the company.

Some companies sell annuities with cost-of-living adjustments in each subsequent year, but initial payouts are much smaller. For our hypothetical couple, a 3% annual inflation adjustment would result in payouts ranging from $359 to $379 to start, according to ImmediateAnnuities.com.

Inflation protection may be unnecessary if retirees have Social Security, which is inflation-adjusted, and investments in stocks, which deliver inflation-beating returns over time, Pfau says.

Pay attention to insurer ratings

Because payouts vary, you’d be smart to shop around — but also consider the insurance company’s rating. A financially weak company may not be around to deliver the promised payouts. (Schwab’s online marketplace represents insurers rated A+ or better by Standard and Poor’s, while ImmediateAnnuities.com includes companies rated A- or better by AM Best.)

Your state’s guaranty association protects your annuity up to certain limits if your insurer fails. In California, for example, the association covers 80% of annuity value up to $250,000, but the maximum coverage available per individual is $300,000.

If you want to invest more than the state coverage limit, consider buying from different companies so all your eggs aren’t in a single insurer’s basket, Williams says. You can also “ladder” your purchases by buying immediate annuities every year or every few years. Annuity payouts are linked to the yield on highly rated corporate bonds, so laddering allows you to take advantage of higher payouts on newly purchased annuities if bond yields rise — although payouts could shrink if bond yields fall, he notes.

How your payouts are taxed depends on where you got the money to buy the annuity. If the cash came from an after-tax account, such as a savings or brokerage account, a portion of each payment will be considered a return of your investment and won’t be taxed.

If you’re buying the annuity with money in a qualified retirement account, such as an IRA or 401(k), the payouts typically will be taxable — but so would any withdrawal from such a source. The money used to buy an immediate annuity won’t be considered part of your retirement funds when it’s time to calculate required minimum distributions , which usually must begin at 73. That could be a boon for big savers who are worried about such distributions pushing them into a higher tax bracket.

Immediate annuities aren’t a solution for every retiree, but they can be an effective way to buy peace of mind, Williams says.

“Generating income on your own can be daunting and annuities are a good tool to help,” he says.

This article was written by NerdWallet and was originally published by The Associated Press.

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These are the 3 biggest retirement plan rollover mistakes, expert says. Here's how to avoid penalties


  • If you're saving for retirement with a 401(k) or individual retirement account, it's easy to lose money to taxes and penalties when moving money between accounts.
  • Denise Appleby, CEO of Appleby Retirement Consulting, covers three of the biggest rollover mistakes.

PHOENIX — If you're saving for retirement with a 401(k) or individual retirement account, it's easy to lose money to taxes and penalties when moving money between accounts.

A lot of investors make costly rollover mistakes without consulting a professional for guidance, according to Denise Appleby, CEO of Appleby Retirement Consulting.

"We need to band together and help to protect those assets," she said, speaking at the Financial Planning Association's  annual conference  on Thursday.

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A rollover happens when you pull money out of one plan and deposit it into another, which is different from a transfer that moves accounts between institutions.

Here are three of the most common rollover mistakes to avoid, Appleby warned.

1. Bypassing the once-per-year IRA rollover rule

"The biggest one is breaking the one-per-year IRA to IRA rollover rule," Appleby told CNBC. "And that happens because people are impatient."

Generally, you can't make more than one IRA rollover from the same IRA within a 12-month period, she explained. Otherwise, you must include the rollover in gross income, and it may be subject to a 10% early withdrawal penalty before age 59½.

Plus, the IRS treats the additional rollover as an excess contribution , which triggers a 6% levy per year for every year the money stays in the new IRA.

2. Missing the 60-day rollover deadline

Another common mistake is missing the 60-day retirement plan rollover deadline, Appleby said.

You have 60 days to complete a retirement plan or IRA rollover and the clock starts ticking when you receive the proceeds, she explained.

"People have good intentions and then life happens," she said. Generally, missing the 60-day deadline means treating the money as a taxable distribution — unless you qualify for an IRS waiver .

3. Losing eligibility for the 10% penalty exception

Most retirement plan distributions are taxable and trigger a 10% early withdrawal penalty unless you qualify for one of the exceptions .

However, these exceptions are account-specific and may not apply after transferring money from a 401(k) to IRA, or vice versa. "That happens quite a lot," Appleby said.

For example, there's a 10% penalty exception of up to $10,000 for first-time homebuyers for IRAs, but not 401(k) plans. And there's no exception for leaving your job at age 55 or older, known as "separation from service," when pulling the money from an IRA. That's typically in play for employer plans such as 401(k)s.

That's why you need to check the list before rolling over funds to see if you lose eligibility for certain exceptions, she said.

How to retire with $1 million if you're making $80,000 per year

Invesco BulletShares 2033 Corporate Bond ETF

Product details.

The Invesco BulletShares® 2033 Corporate Bond ETF (Fund) is based on the Nasdaq BulletShares® USD Corporate Bond 2033 Index (Index). The Fund will invest at least 80% of its total assets in corporate bonds that comprise the index. The Index seeks to measure the performance of a portfolio of US dollar-denominated, investment-grade corporate bonds with effective maturities in 2033. The Fund does not purchase all of the securities in the Index; instead, the Fund utilizes a "sampling" methodology to seek to achieve its investment objective. The Fund and the Index are rebalanced monthly. The Fund has a designated year of maturity of 2033 and will terminate on or about Dec. 15, 2033. See the prospectus for more information.


1. Weighted Average Yield to Worst uses the lowest discount rate for all possible redemption date scenarios with its market price. A fund's Average YTW is defined as the weighted average of a fund's individual bond holding YTW and is based upon the price of each individual bond that was utilized to calculate that day's net asset value and does not include fund fees and expenses. 2. Price Adjustment is an adjustment made to the Weighted Average Yield to Worst (which is based upon NAV) to extent that the Purchase Price is above or below NAV. A Purchase Price that is greater than NAV will effectively reduce the Weighted Average Yield to Worst, while Purchase Price less than NAV will effectively increase the Weighted Average Yield to Worst. The Price Adjustment is an approximation. Formula: Price Adjustment = [NAV - Purchase Price / (NAV X Average Duration at most recent quarter end)] 3. Price Adjusted Weighted Average Yield to Worst is the sum of the weighted average yield to worst and the price adjustment. 4. Estimated Net Acquisition Yield is an approximation of the Weighted Average Yield to Worst a shareholder may experience given the impact of purchase price and the fund's expense ratio on the Weighted Average Yield to Worst based upon NAV. Formula: Estimated Net Acquisition Weighted Average Yield to Worst = Weighted Average Yield to Worst + Price Adjustment - Expense Ratio Note: Net asset value data is based on daily data and Weighted Average Yield to Worst data is based on weekly data.

Sector Allocation

Quality allocations † as of 09/28/2023, as of 09/28/2023 top fixed-income holdings | view all.

Holdings are subject to change and are not buy/sell recommendations.

Fund Documents

  • Annual Report
  • Semiannual Report

 Risk & Other Information

There are risks involved with investing in ETFs, including possible loss of money. Shares are not actively managed and are subject to risks similar to those of stocks, including those regarding short selling and margin maintenance requirements. Ordinary brokerage commissions apply. The Fund's return may not match the return of the Underlying Index. The Fund is subject to certain other risks. Please see the current prospectus for more information regarding the risk associated with an investment in the Fund.

Investments focused in a particular industry or sector are subject to greater risk, and are more greatly impacted by market volatility, than more diversified investments. The Fund is non-diversified and may experience greater volatility than a more diversified investment.

Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa.

During the final year of the Fund's operations, as the bonds mature and the portfolio transitions to cash and cash equivalents, the Fund's yield will generally tend to move toward the yield of cash and cash equivalents and thus may be lower than the yields of the bonds previously held by the Fund and/or bonds in the market.

An issuer may be unable or unwilling to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer's credit rating.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

Income generated from the Fund is based primarily on prevailing interest rates, which can vary widely over the short- and long-term. If interest rates drop, the Fund's income may drop as well. During periods of rising interest rates, an issuer may exercise its right to pay principal on an obligation later than expected, resulting in a decrease in the value of the obligation and in a decline in the Fund's income.

An issuer's ability to prepay principal prior to maturity can limit the Fund's potential gains. Prepayments may require the Fund to replace the loan or debt security with a lower yielding security, adversely affecting the Fund's yield.

The Fund currently intends to effect creations and redemptions principally for cash, rather than principally in-kind because of the nature of the Fund's investments. As such, investments in the Fund may be less tax efficient than investments in ETFs that create and redeem in-kind.

Unlike a direct investment in bonds, the Fund's income distributions will vary over time and the breakdown of returns between Fund distributions and liquidation proceeds are not predictable at the time of investment. For example, at times the Fund may make distributions at a greater (or lesser) rate than the coupon payments received, which will result in the Fund returning a lesser (or greater) amount on liquidation than would otherwise be the case. The rate of Fund distribution payments may affect the tax characterization of returns, and the amount received as liquidation proceeds upon Fund termination may result in a gain or loss for tax purposes.

During periods of reduced market liquidity or in the absence of readily available market quotations for the holdings of the Fund, the ability of the Fund to value its holdings becomes more difficult and the judgment of the Sub-Adviser may play a greater role in the valuation of the Fund's holdings due to reduced availability of reliable objective pricing data.

The Fund’s use of a representative sampling approach will result in its holding a smaller number of securities than are in the underlying Index, and may be subject to greater volatility.

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  28. Invesco BulletShares 2033 Corporate Bond ETF

    Performance. Portfolio. Documents. Product Details. The Invesco BulletShares® 2033 Corporate Bond ETF (Fund) is based on the Nasdaq BulletShares® USD Corporate Bond 2033 Index (Index). The Fund will invest at least 80% of its total assets in corporate bonds that comprise the index.