A quick overview of retirement plan types
Retirement plans fit into one of these categories:
Defined-contribution plans
In this type of plan, both the employer and employee contribute to the retirement plan. The money in the account grows based on investment returns, and the employee typically takes on the investment risk. The most common examples of defined contribution plans are 401(k) and 403(b) plans, but there are a few others (Jump to the full breakdown here).
Defined-benefit plans
This type of retirement plan provides the employee with guaranteed income in retirement. The amount depends on the employee's salary and years of experience. Pensions are considered defined-benefit plans (more on this below).
Similar to defined-contribution plans, both employees and employers can contribute, but the employer makes the investments and assumes the risk.
Individual retirement accounts
These accounts can be opened by anyone with earned income. The two main types are traditional and Roth IRAs, which differ based on how contributions and earnings are taxed (skip to the details here).
Self-employed or small business owner accounts
For those who are self-employed or run their own business, there are specific retirement accounts catering to their needs and company size. We cover all the basics below.
Whether you're a young professional just starting out, a seasoned worker looking to maximize your savings, or a self-employed individual seeking tailored options, choosing the right retirement plan is crucial for building a solid financial foundation.
In this guide, we’ll explore several retirement plans available today, breaking down their benefits, limitations and the types of people who may qualify for each.
The 11 best retirement plans
Employer-sponsored retirement plans
An employer-sponsored retirement plan is a workplace benefit offered by employers to help employees save for retirement. Employees contribute to their retirement plan through payroll deductions and choose investments based on what’s available from the plan provider. Many employers also offer a matching contribution, providing an extra incentive to save for retirement.
Key benefits of employer-sponsored retirement plans include higher contribution limits compared with other types of retirement plans, as well as tax advantages. Drawbacks could include limited plan and investment options (depending on the provider), varying management and administrative fees, and a potential vesting schedule set by the employer.
401(k)
A 401(k) is a retirement savings plan typically offered by employers in the private sector. Named after a subsection of the U.S. Internal Revenue Code, there are two types of 401(k)s: traditional and Roth. With a traditional 401(k), contributions are made with pretax dollars, reducing your taxable income for the year, but you’ll pay taxes on distributions in retirement
Some — but not all — employers also offer a Roth 401(k), which accepts after-tax contributions. Although contributing to a Roth won’t lower your taxable income for the year, the distributions in retirement are tax-free.
Key features:
- Employers may offer a match based on employer contributions.
- Tax-deferred growth or tax-free withdrawals, depending on the type of plan.
- Roth 401(k)s are not subject to required minimum distributions (RMDs).
Contribution limits:
- $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250.
» Learn more about 401(k) contribution limits
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403(b)
A 403(b), also known as a tax-sheltered annuity (TSA), is a tax-advantaged retirement savings plan designed for employees of public schools, nonprofit organizations and certain religious institutions. It functions similarly to a 401(k) plan but is tailored specifically for workers in these sectors.
What to keep in mind: Investments may sometimes be limited to high-fee mutual funds and/or variable annuity multi-year contracts.
Key features:
- Contributions can be pretax or, if the employer offers a Roth, after-tax.
- Optional 15-year rule allows catch-up contributions for qualified employees with 15 years of service to contribute $3,000 each year for five years, up to a $15,000 lifetime max.
- 403(b)s are subject to a “universal availability rule,” which means that if one employee can defer their salary into a 403(b), all other employees can as well. Employers can exclude some employees, such as those who work part-time, participate in other employer-sponsored plans or who contribute less than $200 a year.
Contribution limits:
- $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250.
» Compare the differences between 403(b) plans and IRAs
457(b)
A 457(b) plan is a tax-advantaged retirement savings plan primarily available to employees of state and local governments and certain tax-exempt organizations. It shares the same high annual contribution limits as 401(k)s and 403(b)s.
If an employer offers a 403(b) or 401(k) in addition to the 457(b), workers might be eligible to contribute to both. However, an employer match is rare and, if offered, is included in the annual contribution limit. Contractors are eligible for a 457(b).
Key features:
- Special catch-up contribution, if allowed by the plan, during the three years prior to retirement if the account holder meets certain requirements.
- No 10% early withdrawal penalty for withdrawals made before age 59 ½ if the worker leaves their job, but income taxes will still apply.
- Hardship withdrawals may be permitted for unforeseeable emergencies, such as illness or accident .
Contribution limits:
- $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250.
Thrift Savings Plan (TSP)
A Thrift Savings Plan is a retirement plan designed for federal government employees and members of uniformed services, such as the military. Fees are low, making it a cost-effective plan for federal workers, and there is a match for the first 5% of pay contributed.
Key features:
- Roth and traditional versions available.
- Three-year vesting schedule for most employees.
- Limited selection of investment options.
Contribution limits:
- $24,500 in 2026. People aged 50 and older can contribute an extra $8,000 as a catch-up contribution. Due to the Secure 2.0 Act, those aged 60, 61, 62 and 63 get a higher catch-up contribution of $11,250.
Individual retirement accounts (IRAs)
The best retirement plan for many individuals is often an IRA. It's a retirement plan many people turn to, in part because it is accessible to anyone with earned income. Whether you earn money through an employer or work for yourself, you can open an IRA. Setting up an IRA can be done at a financial institution, such as a bank or brokerage firm, to hold investments — stocks, mutual funds, bonds and cash — earmarked for retirement.
A major advantage of IRAs is that they put you in the driver’s seat. You choose the bank or brokerage and make all the investment decisions, or hire someone to make them for you. IRAs usually provide a much wider range of investment choices than workplace retirement plans do, since you get to choose where you want to open your IRA.
While there is much more freedom of choice with an IRA than with a 401(k), there are some caveats as well. One consideration in the IRA vs. 401(k) debate is that IRAs have lower annual contribution limits than most workplace retirement accounts. That means that with an IRA, you set aside less money every year. However, note that you can have both a 401(k) and IRA, and if you qualify, you can contribute to both for the same tax year.
You can also have more than one type of IRA, allowing you to choose between different tax strategies. Below, we’ll review two popular types: the traditional and the Roth IRA, their unique tax advantages, and specific account rules.
Traditional IRA
In a traditional IRA, growth is tax-deferred, and contributions can be tax-deductible. This means you may be able to deduct all or some of your annual contribution when you file taxes the following year. When it comes to taking distributions in retirement, you’ll pay income taxes on the amounts you withdraw at your ordinary income tax rate.
Key features:
- There are no income limits to open an IRA, but qualifying for a tax deduction for contributing to a traditional IRA depends on annual income and filing status.
- If you or your spouse has an employer-sponsored retirement plan, your ability to deduct traditional IRA contributions may also be limited or not allowed.
- You will need to take RMDs once you hit age 73.
Contribution limits:
- $7,500 for 2026 ($8,600 if aged 50 and older). You can contribute to an IRA for 2026 through the April 2027 tax filing deadline.
» Learn more about traditional IRA income limits
Roth IRA
In a Roth IRA, contributions are made with after-tax money. While there isn’t a tax break up front for adding money to a Roth IRA account, there are no taxes on investment growth and withdrawals in retirement. Eligibility and the amount you can contribute to a Roth IRA depends on your modified annual gross income (MAGI) and your filing status.
Key features:
- Contributions can be withdrawn at any time without taxes or an early withdrawal penalty.
- No RMDs required during the original account holder’s lifetime.
- If you don’t qualify to directly contribute to a Roth IRA, consider a backdoor Roth IRA strategy.
Contribution limits:
- The maximum contribution amount for 2026 is $7,500 ($8,600 for those 50 and older).
Income limits:
- At higher incomes, the contribution is phased out. You can contribute to an IRA for 2026 through the April 2027 tax filing deadline.
» What to know about Roth IRA contribution and income limits
Retirement plans for the self-employed and small business owners
If you work at or run a small company or are self-employed, you might have a different set of retirement plans at your disposal. Some are IRA-based, while others are essentially single-serving-sized 401(k) plans. And then there are profit-sharing plans, which are a type of defined contribution plan.
Many retirement plans for the self-employed or small-business owners offer more investment choices than most employer plans and may offer higher contribution limits than most employer plans and IRAs. Self-employed individuals may also be able to set up a profit-sharing contribution as an employer and elective deferral — with catch-up — as the employee, increasing the amount of money set aside for retirement (though there is a profit-sharing cap of about 20% of net profits because of Federal Insurance Contribution Act taxes due on net profits).
There are also a few drawbacks: Employer contributions into these retirement plans aren't mandatory, which means that employees and plan participants might take on more financial responsibility for their retirement accounts. The parameters for early and hardship withdrawals are also different compared to the conventional IRAs and employer-sponsored retirement accounts.
Solo 401(k)
Designed for self-employed individuals or business owners without employees, a Solo 401(k) offers high contribution limits and tax-deferred or tax-free growth. It allows both employee and employer contributions, maximizing savings potential.
Key features:
- Roth and traditional options available.
- No age or income restrictions to open a solo 401(k) plan.
- Spouses can be covered by a solo 401(k).
Contribution limits:
- As an employee, you can contribute up to $24,500 ($32,500 if age 50 and older). If you're between the ages of 60 and 63, you get a larger catch-up contribution.
- As an employer, you can make an extra profit-sharing contribution of up to 25% of your net income or net self-employment income, with a limit of up to $360,000 in 2026.
» Learn more about solo 401(k) plans
Simplified Employee Pension (SEP) IRA
A SEP IRA is a type of individual retirement plan for business owners and self-employed individuals with no or few employees. Only employers can contribute to a SEP IRA, and the contributions are tax-deductible for the business.
Key features:
- Employer-funded contributions only, though employees own and control their own accounts.
- No catch-up contributions for those age 50 or older.
- Employees (other than yourself) must meet eligibility requirements to have contributions made to their SEP IRA.
Contribution limit:
- The SEP IRA contribution limit is the lesser of 25% of compensation or $72,000 in 2026.
» Learn more about SEP IRAs
Savings Incentive Match Plan for Employees (SIMPLE IRA)
SIMPLE IRAs are ideal for small businesses with 100 or fewer employees. In contrast with a SEP IRA, employer contributions are required, and employees can also contribute by making payroll contributions.
Key features:
- Employer contributions are mandatory.
- Employer contributions vest immediately for employees.
- Strict rules for rollovers to another IRA or employer-sponsored retirement plan.
Contribution limits:
- The limit is $17,000 in 2026. Because of the Secure 2.0 Act, some plans allow for an increased contribution limit of $18,100. People age 50 and older can make an additional SIMPLE IRA catch-up contribution of $4,000 in 2026. If you are eligible for the higher deferral limit due to the Secure 2.0 Act, that catch-up contribution limit is $3,850. The higher catch-up limit for those who are 60, 61, 62 or 63 is $5,250.
» Learn more about SIMPLE IRAs
Pension plans
Pension plans are a type of defined-benefit plan sponsored by employers that provide a fixed income in retirement. The amount often depends on the employee’s salary and years of service.
Key features:
- Employees contribute a set amount of their paycheck, which is then matched by their employer (match depends on pension documents or employee contract)
- Employees are responsible for investing contributions for their retirement and may cash out or move pensions depending on plan rules.
- Pensions may not be protected against inflation, and there is a possibility of outliving a pension.
Contribution limit:
- Contributions and benefits are calculated by an actuary. According to the IRS, the annual benefit can’t exceed the lesser of 100% of the participant’s average compensation for their three highest consecutive calendar years, or $290,000 for 2026.
Annuities
Annuities are insurance contracts that provide guaranteed income for a set period or for life. They are funded with a lump sum or regular payments and are ideal for those seeking a steady income stream in retirement.
Key features:
- Customizable options (fixed, variable, or indexed annuities).
- Optional death benefits in some plans could allow beneficiaries to receive any unpaid funds.
- Limited or no say in investment decisions.
» Compare an annuity vs. an IRA
Cash balance plans
Cash balance plans are a hybrid between pensions and 401(k)s, and offer high contribution limits based on age and income. Each year, the employer adds a percentage of the employee's salary, also known as a pay credit, into the account as well as an interest credit, which could be tied to a fixed rate or index. When leaving or retiring from the company, the employee could choose to take the account balance as a lump sum distribution (which could be rolled into an IRA or another benefit plan) or an annuity.
Key features:
- Employers carry investment risks, rather than the employee.
- Employees can choose to receive benefits as a lump sum or an annuity that pays out income based on the account balance.
- Benefits of a cash balance plan are typically protected by federal insurance through the Pension Benefit Guaranty Corporation.
The bottom line
Even after this, you might be wondering: what is the best retirement plan? The real answer depends first on what types of retirement plans are available to you and then on how you want to invest.
- If you work for an employer that offers a retirement plan, that's typically the most common place to start, especially if your employer provides a matching contribution.
- From there, if you've contributed enough to receive a match, or you don't have a retirement plan through work, consider using an IRA. These accounts are open to anyone with earned income, as well as non-working spouses through a spousal IRA. Compare the pros and cons of both the Roth and traditional IRA to help decide which one suits your needs best.
- And once you've maxed out the annual contribution for the IRA and you still want to continue saving for retirement, you can turn back to your employer-sponsored account.
- If you're self-employed or own a small business, using one of the retirement accounts designed specifically for you, including a SEP IRA, solo 401(k), SIMPLE IRA and profit-sharing plans, can help you maximize your retirement savings. These can be a little bit more complicated, so reaching out to a financial advisor to make an individualized plan can be useful.
» Want help? Read our guide on how to choose a financial advisor.
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