Planning for retirement can feel like navigating a maze. The size of a small city. In the dark. But the good news is, with so many options available, there’s definitely a retirement account that fits your goals perfectly. Here’s the 411 on each type of retirement account.
1. Traditional IRA
A Traditional IRA (Individual Retirement Account) is a popular choice for many savers. You contribute pre-tax dollars, which means you get a tax break upfront. The money grows tax-deferred, and then you pay taxes when you withdraw it once you’re retired.
Perfect for: People who expect to be in a lower tax bracket in retirement. If you love the idea of saving on taxes now and don’t mind paying them later, this might be the one for you.
2. Roth IRA
With a Roth IRA, you contribute after-tax dollars, so there’s no immediate tax benefit. But your money grows tax-free, and withdrawals once you’re retired are also tax-free. It’s a good deal if you expect your tax rate to be higher in the future.
Perfect for: Younger savers or those who anticipate being in a higher tax bracket later. If you like the idea of tax-free money in retirement, a Roth IRA could be your best bet.
3. 401(k)
A 401(k) is a retirement plan sponsored by your employer. You can contribute pre-tax dollars, and many employers will match your contributions—it’s essentially free money! The funds grow tax-deferred until you withdraw them in retirement.
Perfect for: Employees with access to a 401(k) plan, especially those whose employers offer matching for retirement accounts. If you want to boost your savings with a little help from your employer, a 401(k) is a solid choice.
4. Roth 401(k)
A Roth 401(k) combines the features of a traditional 401(k) and a Roth IRA. Contributions are made with after-tax dollars, but your money grows tax-free, and withdrawals in retirement are also tax-free.
Perfect for: Those who want the benefits of both a 401(k) and a Roth IRA. If you want to diversify your tax strategy in retirement, a Roth 401(k) offers great flexibility.
5. SEP IRA
A Simplified Employee Pension (SEP) IRA is designed for self-employed people and small business owners. It has higher contribution limits than a Traditional IRA, and contributions are tax-deductible.
Perfect for: Self-employed folks and small business owners who want to maximize their retirement savings. If you’re your own boss and want to save big, a SEP IRA is one of your best bets.
6. SIMPLE IRA
A Savings Incentive Match Plan for Employees (SIMPLE) IRA is another option for small businesses. Employees and employers can both contribute, and it’s simpler to set up and manage than a 401(k).
Perfect for: Small business owners who want an easy-to-administer retirement plan. If you want a straightforward plan that supports both employer and employee contributions, consider a SIMPLE IRA.
7. Solo 401(k)
A Solo 401(k) is a retirement plan for self-employed individuals without employees. It has high contribution limits and the option to make both employee and employer contributions.
Perfect for: Self-employed individuals without employees who want to maximize their retirement contributions. If you’re flying solo in your business, a Solo 401(k) is an excellent option.
8. 403(b)
A 403(b) plan is similar to a 401(k) but is designed for employees of public schools and certain tax-exempt organizations. Contributions are made pre-tax, and the money grows tax-deferred—though you will have to pay taxes when you’re retired and you withdraw the money.
Perfect for: Educators and employees of non-profits. If you work in education or for a non-profit, a 403(b) can be a powerful tool for your retirement accounts.
9. 457(b)
A 457(b) plan is available to state and local government employees and some non-profit employees. It offers tax-deferred growth, and there’s no penalty for early withdrawals if you leave your job, which is a pretty huge benefit.
Perfect for: Government and non-profit employees. If you’re in the public sector, a 457(b) will give you flexibility and tax advantages.
10. Thrift Savings Plan (TSP)
The Thrift Savings Plan is a retirement plan for federal employees and military service members. It’s similar to a 401(k) and has both traditional and Roth options for retirement accounts.
Perfect for: Federal employees and military personnel. If you’re serving our country, the TSP is tailored to meet your retirement needs.