top of page

Retirement account descriptions by type:

Retirement accounts are specialized investment accounts designed to help individuals save for retirement while providing tax advantages. Here are some common retirement account options:

​

  1. Employer-Sponsored Retirement Plans:

    a. 401(k) Plan:

    • A 401(k) plan is one of the most common employer-sponsored retirement plans. Employees can contribute a portion of their pre-tax income to the plan, which is then invested in a selection of investment options offered by the employer.

    • Contributions to a traditional 401(k) are typically tax-deferred, meaning you don't pay taxes on the contributions or any investment gains until you withdraw the funds in retirement.

    • Some employers offer a Roth 401(k) option, where contributions are made with after-tax dollars, but withdrawals in retirement are tax-free.

    b. 403(b) Plan:

    • Similar to a 401(k) plan, a 403(b) plan is offered by certain nonprofit organizations, schools, and government entities.

    • Contributions to a traditional 403(b) are typically tax-deferred, while contributions to a Roth 403(b) are made with after-tax dollars.

    c. 457 Plan:

    • A 457 plan is typically offered by state and local governments and certain nonprofit organizations.

    • Like a 401(k) or 403(b), contributions to a traditional 457 plan are often tax-deferred, while Roth 457 plans offer tax-free withdrawals in retirement.

  2. Individual Retirement Accounts (IRAs):

    a. Traditional IRA:

    • A traditional IRA allows individuals to make tax-deductible contributions, subject to certain income limits.

    • Contributions and investment gains grow tax-deferred until retirement, at which point withdrawals are taxed as ordinary income.

    • Individuals must begin taking required minimum distributions (RMDs) from traditional IRAs after reaching age 72 (as of 2022).

    b. Roth IRA:

    • With a Roth IRA, contributions are made with after-tax dollars, meaning there are no upfront tax deductions.

    • However, qualified withdrawals in retirement, including earnings, are tax-free, provided certain conditions are met.

    • Unlike traditional IRAs, Roth IRAs do not require RMDs during the original account holder's lifetime, making them a valuable estate planning tool.

  3. Self-Employed Retirement Plans:

    a. SEP-IRA (Simplified Employee Pension IRA):

    • Designed for self-employed individuals and small business owners, a SEP-IRA allows for tax-deductible contributions of up to a certain percentage of net income, with higher contribution limits than traditional or Roth IRAs.

    • Like traditional IRAs, contributions and investment gains grow tax-deferred until retirement, at which point withdrawals are taxed as ordinary income.

    b. Solo 401(k):

    • Also known as an Individual 401(k) or Solo(k), this retirement plan is available to self-employed individuals and business owners with no full-time employees other than a spouse.

    • Solo 401(k)s offer higher contribution limits than SEP-IRAs and allow for both employee and employer contributions.

​

These retirement accounts offer various tax advantages and features, so it's essential to understand the specifics of each option and how they fit into your overall retirement savings strategy. Consider consulting with a financial advisor or opening your own account at Best Online IRA Accounts for great options.​

bottom of page