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You’ve heard it a million times: You have to start saving for retirement.

Knowing you need to save is one thing, but knowing how to get started is another. After all, how do you figure out the best retirement plans for your financial goals?

You can sleep a bit easier tonight. We’re about to get you up to speed on the best individual, small business and employer-sponsored retirement plans. Once you know your options, you can confidently start saving for the future.

The best individual retirement plans

Individual retirement accounts (IRAs) are accounts that you can open on your own, outside of anything offered by your employer. These plans offer a lot of flexibility and are both easy to set up and maintain.

  Who qualifies  Features Best for…
Traditional IRA Individuals with earned income
  • Tax-deductible contributions
  • Tax-free growth
  • Taxable withdrawals
People who expect their tax rate to decrease over time
Roth IRA Individuals with earned income below a certain threshold
  • Nondeductible contributions
  • Tax-free growth
  • Tax-free withdrawals
People who expect their tax rate to increase over time or want flexible access to their money
Spousal IRA Individuals with a spouse who has earned income
  • Ability to choose Roth or traditional 
  • Same features as Roth and traditional IRAs
People who don’t have earned income, but have a spouse who does
Rollover IRA Individuals with an eligible employer retirement plan from an employer they no longer work for
  • Same tax treatment as original employer retirement plan
  • Wide range of investment options
People who want more control over their investments
Non-qualified annuities Anyone with investable cash
  • No age or income limits
  • Only taxed on earnings
Those who have max-out their individual and employer-sponsored retirement plans

Traditional IRA

Contributions to a traditional IRA are generally tax-deductible, which means that you can potentially deduct every dollar you contribute from your taxable income at tax time. Your investments grow tax-free while inside the IRA, but your withdrawals are taxed as income in retirement at your current tax rate.

Traditional IRA

  • Type of plan: IRA
  • Annual contribution limit (2022): $6,000 ($7,000 for ages 50+)
  • Income limits: No income limit on contributions, but there are income limits that state who can and can’t deduct contributions
  • Allowed withdrawals: Penalty-free after age 59 ½
  • Income tax on withdrawals: Yes
  • Best for: Those who expect their tax rate to be lower during retirement

Roth IRA

With a Roth IRA, you contribute after-tax money, which means you can’t deduct your contributions as you would with a traditional IRA. However, you get a bonus: Your investments grow tax-free, then you get to take tax-free withdrawals during retirement.

Unlike a traditional IRA, you can withdraw contributions made to a Roth IRA at any time, since that money has already been taxed. We’ve compared Roth and traditional IRAs side by side so you can make the best choice.

Roth IRA

  • Type of plan: IRA
  • Annual contribution limit (2022): $6,000 ($7,000 for those 50+)
  • Income limits: Yes. Our in-depth explainer on Roth IRA income limits can help
  • Allowed withdrawals: Contributions at any time, earnings penalty-free once you reach age 59 ½ and have held the Roth IRA for at least five years
  • Income tax on withdrawals: Contributions withdrawals are tax-free, and earnings can be withdrawn tax-free after age 59 ½ if you have held the Roth IRA for at least five years
  • Best for: Those who expect their tax rate to be higher during retirement, or who want more flexibility with withdrawals

Spousal IRA

If you don’t receive a paycheck, but your spouse does, you can save for retirement using a spousal IRA. These IRAs are simply Roth or traditional IRAs that you contribute to based on your spouse’s earned income. To be eligible for a spousal IRA, you and your spouse must file your taxes as “married filing jointly.”

Spousal IRA

  • Type of plan: IRA
  • Annual contribution limit (2022): $6,000 ($7,000 for ages 50+)
  • Income limits: Same as Roth and traditional IRAs
  • Allowed withdrawals: Same as Roth and traditional IRAs
  • Income tax on withdrawals: Same as Roth and traditional IRAs
  • Best for: Individuals who don’t have earned income, but have a spouse who does

Rollover IRA

When you leave a job where you have an employer-sponsored retirement plan like a 401(k) or 403(b), you can roll the assets in that plan into a Rollover IRA. This type of IRA can give me more control over your fees and investment options that might be available with your previous employer’s plan.

Rollovers are usually like-to-like, which means you’d roll a standard 401(k) over into a traditional IRA and a Roth 401(k) into a Roth IRA.

Rollover IRA

  • Type of plan: IRA
  • Annual contribution limit (2022): No limit on the rollover amount, but future contribution limits are the same as Roth and traditional IRAs
  • Income limits: No income limits on rollovers, but income limits on future contributions apply if you roll over to a Roth IRA
  • Allowed withdrawals: Same as Roth and traditional IRAs
  • Income tax on withdrawals: Same as Roth and traditional IRAs
  • Best for: Individuals who want more control over their assets in a previous employer retirement plan

Non-qualified annuities

Non-qualified annuities offer tax-deferred investment growth and can be a good option for people who want to save more after maxing out their other tax-advantaged retirement accounts.  You’ll make contributions with after-tax dollars, and while your funds are in the non-qualified annuity, your money grows tax-deferred. Then, when you make withdrawals in retirement, you’re only taxed on the earnings withdrawn.

Non-qualified annuity

  • Type of plan: Annuity
  • Annual contribution limit (2022): None
  • Income limits: None
  • Allowed withdrawals: Penalty-free after age 59 ½
  • Income tax on withdrawals: Yes, but only on withdrawn earnings
  • Best for: Those who want to save more after maxing out other tax-advantaged retirement plans or are concerned with outliving their retirement savings

Small business retirement plans

If you own your own business or freelance, you may be able to contribute to a small business retirement plan. These retirement plans can supercharge your retirement savings and potentially help your employees save for their retirements, too.

  Employee benefits Tax advantage Best for…
Solo 401(k)/
Solo Roth 401(k)
None (other than the owner as an employee). Tax-deductible contributions or tax-free withdrawals Business owners with no employees
SEP IRA Employer contribution Tax-deductible contributions Business owners who want to contribute to employee retirement accounts
SIMPLE IRA Employer and employee contributions Tax-deductible contributions Business owners who want a mix of employee and employer contributions

Solo 401(k) or Solo Roth 401(k)

If you don’t have employees, you can open a solo 401(k). These plans let you make contributions as both an employee and an employer. Solo 401(k)s have higher contribution limits than individual IRAs, which can help solo small business owners enjoy perks usually reserved for employees of larger companies.

Solo 401(k) and Solo Roth 401(k)

  • Type of plan: 401(k)
  • Annual contribution limit (2022): $61,000 ($67,500 for ages 50+)
  • Employer contributions: Limited to 25% of income
  • Employee contributions: Up to $20,500 ($27,000 for ages 50+)
  • Allowed withdrawals: Penalty-free after age 59 ½
  • Income tax on withdrawals: Yes for traditional plans, no for Roth plans
  • Best for: Business owners with no employees who want higher annual savings limits than an individual IRA

SEP IRA

A Simplified Employee Pension (SEP) IRA is an IRA type reserved for business owners. Unlike a solo 401(k), only employer contributions are allowed. However, you can include employees in your SEP IRA plan as well.

SEP IRA

  • Type of plan: IRA
  • Annual contribution limit (2022): $61,000
  • Employer contributions: Same contribution percentage for every participant, including the business owner
  • Employee contributions: Not allowed.
  • Allowed withdrawals: Penalty-free after age 59 ½
  • Income tax on withdrawals: Yes
  • Best for: Business owners who want to contribute to employee retirement accounts

SIMPLE IRA

A Savings Incentive Match Plan for Employees or SIMPLE IRA is another IRA reserved for business owners. Unlike a SEP IRA, employee and employer contributions are allowed with SIMPLE IRAs.

SIMPLE IRA

  • Type of plan: IRA
  • Annual contribution limit (2022): A percentage of compensation up to $305,000
  • Employer contributions: 3% match or 2% nonelective contribution
  • Employee contributions: $14,000 max ($17,000 for ages 50+)
  • Allowed withdrawals: Penalty-free after age 59 ½
  • Income tax on withdrawals: Yes
  • Best for: Business owners who want a combination of employee and employer contributions

Employer-sponsored retirement plans

The best employer retirement plan is the one your employer offers. With employer plans, you’ll usually make contributions via payroll deductions, making your savings automatic. Plans through employers can come with other perks, too, like a “match” on your contributions.

Expert tip: If your employer offers a match, make sure you contribute enough to your employer’s plan to get the full match. For example, if your plan offers a 3% employer match and you’re only contributing 2% of your salary each payday, you’re leaving a full 1% of free money on the table.

  Who qualifies Features Best for…
401(k) and
Roth 401(k) 
Employees of nongovernmental, public school or tax-exempt organizations
  • High contribution limits
  • Pretax or Roth contributions
  • Potential employer match
Individuals whose company offers a 401(k)
403(b) plans Employees of public schools, tax-exempt organizations and churches
  • High contribution limits
  • Pretax or Roth contributions
  • Potential employer match
Individuals who work for an eligible tax-exempt organization
457(b) plans Employees of state and local governments and certain tax-exempt organizations
  • High contribution limits
  • Pretax or Roth contributions
  • Potential employer match
Individuals who work for a state or local government
Pension plans Employees of companies offering a defined benefit plan
  • Predictable retirement income
Individuals who want predictable retirement income

401(k) or Roth 401(k)

401(k)s are likely the most well-known type of employer retirement plan. With a 401(k), you contribute a percentage of your salary each payday, and you may receive an employer match as well. Depending on your plan, you may have a choice between traditional pretax contributions and Roth contributions.

401(k) or Roth 401(k)

  • Type of plan: Defined contribution
  • Annual contribution limit (2022): $20,500 ($27,000 for ages 50+)
  • Employer match: Yes, if your employer offers one
  • Allowed withdrawals: Penalty-free after age 59 ½
  • Income tax on withdrawals: Yes for traditional 401(k), no for Roth 401(k)
  • Best for: Those whose company offers a 401(k) and contribute enough to take advantage of their employer’s match (if offered)

403(b) plans

403(b) plans operate a lot like 401(k) plans, but are offered by public schools, tax-exempt organizations and churches. You may receive an employer match, and you may be able to make Roth contributions as well.

403(b) plan

  • Type of plan: Defined contribution
  • Annual contribution limit (2022): $20,500 ($27,000 for ages 50+), plus a catch-up contribution for employees with 15+ years of service
  • Employer match: Yes, if your employer offers one
  • Allowed withdrawals: Penalty-free after age 59 ½
  • Income tax on withdrawals: Yes for traditional 403(b), no for Roth 403(b)
  • Best for: Those who work for a school or eligible tax-exempt organization

457(b) plans

457(b) plans come in two flavors. Those offered by state and local governments operate much like 401(k)s. Those offered by nongovernmental tax-exempt organizations are typically limited to highly compensated employees and come with fewer protections against creditors.

457(b) plan

  • Type of plan: Defined contribution
  • Annual contribution limit (2022): $20,500 ($27,000 for ages 50+), plus an increased limit in the last three years before “normal retirement age” — defined as 67 for those born in 1960 and later.
  • Employer match: Yes, if your employer offers one
  • Allowed withdrawals: Penalty-free after age 70 ½ or after severance of employment
  • Income tax on withdrawals: Yes for traditional 457(b), no for Roth 457(b)
  • Best for: Those who work for a state or local government

Pension plans

Also known as defined benefit plans, pension plans are set up and maintained by an employer or employee organization (like a union). Unlike other employer plans where your ultimate retirement income depends on the value of the investments inside your plan, pension plans offer a monthly retirement benefit of a fixed dollar amount (e.g. $300 per month) or a dollar amount calculated using your salary and years of service.

Pension plan

  • Type of plan: Defined benefit
  • Annual contribution limit (2022): Max salary used to calculate benefits is $305,000
  • Employer match: Employer contributes, but it is not a true “match”
  • Allowed withdrawals: Based on the plan’s defined “retirement age”
  • Income tax on withdrawals: Fully or partially taxable, based on how you contributed
  • Best for: Individuals who want predictable retirement income

And that’s it for the best retirement plans. No matter your income or employer, there are multiple ways to save for retirement today and secure your future.

If you need help deciding which individual or small business retirement plan is right or want a strategy to get the most out of your employer’s plan, consider chatting with a financial advisor. An advisor can help craft a plan to build wealth and design the life you envision when it’s time to enjoy all the money you’ve saved.

Frequently asked questions

A solo 401(k) offers the most contribution flexibility if you don’t have employees. If you have employees, the SEP IRA and SIMPLE IRA offer high contribution limits compared to individual IRA plans and lower administrative costs than a solo 401(k).

A retirement plan is a specific investment account governed by the Employee Retirement Income Security Act (ERISA). These plans offer tax benefits to both employers and participating employees, like tax-deferred growth and the potential for tax-free withdrawals during retirement if you have a Roth plan.

Yes, a 401(k) is a retirement plan. These plans are perhaps the most popular type of employer-sponsored plan available to small business owners and employees of larger companies that offer a 401(k) plan.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.




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