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6 Common Types of Retirement Accounts Explained

Updated: Apr 18


Retirement accounts are the place you put the money you are saving for your retirement age (currently 65 in 2025). There are many options for retirement accounts.  Because many options are available to a person or organization, I have added the most common accounts below.  Remember, retirement account choice is based on YOUR personal needs. If you don’t know which one is best for you, let’s define them and help you understand them with examples. You can also visit the IRS website to see more retirement account options and their definitions: Retirement plans | Internal Revenue Service.



What is it?: is a tax-advantaged personal savings plan where contributions may be tax deductible.

Who is it good for: Anyone that has income they've earned and small businesses with less than 100 employees that have made $5,000 working 2 years with the same employer.

Details of an Traditional IRA:

  • Pre-taxed dollar contributions

  • No income limits

  • A range of investments to invest in

  • Yearly contributions limit (limit of $16,500 in 2025)

  • 25% penalty for withdrawing money within 2 years of starting the account

  • Employers can match 3% or automatic contributions of 2%

  • Employers can claim this as an expense for a tax deduction on their tax returns



What is it?: It's a retirement plan that allows employees to contribute a portion of their salary to an account that can grow tax-deferred and their employers can match and contribute to the account.

Who is it good for:  Employees that have employers who offer 401(k) plans.

Details of a Traditional 401(k): 

  • Pre-taxed dollar contributions

  • Employer matches your contributions

  • Easy Automated deductions from your paycheck to contribute to your account

  • Yearly contributions limit (limit of $23,500 in 2025)

  • 10% penalty for withdrawing money before your retirement age



What is it?: It's a retirement plan for federal government and public service employees. It's the federal government's 401(k).

Who is it good for: Federal government civilian employees and military.

Details of a Thrift Savings Plan(TSP): 

  • Pre-taxed dollar contributions

  • Employer matches your contributions

  • Easy Automated deductions from your paycheck to contribute to your account

  • Yearly contributions limit (limit of $23,500 in 2025)

  • 10% penalty for withdrawing money before your retirement age

  • Super Contribution limits depending on age



457(b)Plan

What is it?: It's a retirement plan for state and local federal government public service employees.

Who is it good for: Firefighters, police officers, non-profit hospital workers, university workers.

Details of a 457(b): 

  • Pre-taxed dollar contributions

  • A supplemental retirement income; It supports your other retirement plans like 401(k) or 403(b).

  • Easy Automated deductions from your paycheck to contribute to your account

  • Yearly contributions limit (limit of $23,500 in 2025)

  • No withdrawal penalty before age 59.5 unlike the 401(k) and IRA 10% penalty.



What is it?: A plan that allows employers to contribute to traditional IRAs (SEP-IRAs) set up for employees.

Who is it good for: Self-employed, freelancers, a business of any size

Details of an SEP: 

  • Pre-taxed dollar contributions

  • Employees DON'T contribute, only employers.

  • A range of investments to invest in

  • Flexible contribution plan when cash flow is a problem

  • Employers contribute 0-25% but no more than $70,000 in 2025

  • Employers can claim this as an expense for a tax deduction on their tax returns



What is it?: A plan that public schools, 501(c) charities and tax-exempt organizations offer to its workers.

Who is it good for: non-profit workers in non-government jobs like teachers, hospital employees, ministers at religious organizations, charity workers, etc.

Details of an 403(b): 

  • Pre-taxed dollar contributions

  • Employees and Employers can contribute

  • Contribution limits are the same as 401(k) plan and at 15 years of service, offered a catch-up contribution between $3,000-15,000

  • Employers contribute 0-25% but no more than $70,000 in 2025



Roth Versions of Retirement Accounts

These are tax-advantaged accounts. These are the accounts that have your after-tax contributions in them (i.e. your net income is the money in your account). Therefore, you are paying the income tax on it now and you won't need to pay income tax when you reach the age of 59.5 as of 2025. Your money is growing tax-free. You will only be taxed on whatever interest and/or dividends you have earned from your investment contributions. These accounts are also exempt from RMDs (Required Minimum Distributions). There is a 10% penalty fee if you withdraw money from your account before the age of 59.5.


Traditional Versions of Retirement Accounts

You will be contributing pre-tax dollars (from your gross income), tax deferred growth (pay income taxes when you are at retirement age), and your withdrawals are taxed as current income after age 59.5. There's a general 4% Golden Rule financial advisors recommend to make sure that you don't run out of money in your retirement years. Withdraw 4% of your total retirement savings each year. This 4% is an estimation but it is a good calculation start in understanding how much money you should be deducting every year for timely and efficient money management for your lifestyle.



Retirement Type of IRA Accounts in Other Countries:

 

Definitions:

Required Minimum Distributions: The minimum amount of money you MUST withdraw from your retirement account each year.

Catch-up Contributions: A money contribution amount to make up for the years you didn't save or contribute enough.

Pre-tax Dollars: Money from your gross income. Taxes will be taken for the government at retirement age.

After-tax Dollars: Money from your gross income. Taxes have been taken for the government now.

Tax Deferred: Taxes are delayed now but will be necessary to pay at a later date in the future.

  

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