Learn about Retirement Accounts

Oct 5, 2023

7:00pm ET

Tanya Frias, CFP

Retirement accounts are financial instruments designed to help individuals save and invest for their post-working years. Different countries have various types of retirement accounts with specific tax implications, contribution limits, and withdrawal rules. Here are some common types of retirement accounts in the United States:

1. Traditional Individual Retirement Account (IRA)

  • - Contributions: Often tax-deductible.

  • - Taxes on Withdrawals: Income tax is typically paid upon withdrawal.

  • - Required Minimum Distributions (RMDs): Usually start at age 72.

2. Roth Individual Retirement Account (Roth IRA)

  • - Contributions: Made with after-tax dollars, no tax deduction.

  • - Taxes on Withdrawals: Qualified withdrawals are tax-free.

  • - RMDs: Not required during the account holder’s life.

3. 401(k)

  • - Contributions: Typically made with pre-tax dollars through employer payroll deductions.

  • - Taxes on Withdrawals: Regular income tax upon withdrawal.

  • - RMDs: Start at age 72, unless still employed and not a 5% owner of the business.

4. Roth 401(k)

  • - Contributions: Made with after-tax dollars.

  • - Taxes on Withdrawals: Qualified withdrawals are tax-free.

  • - RMDs: Required, but can be avoided by rolling over to a Roth IRA.

5. 403(b)

  • - Eligibility: Employees of public schools, non-profits, and certain churches.

  • - Contribution and Withdrawal Rules: Similar to 401(k)s.

6. 457(b)

  • - Eligibility: Government and certain non-government employees.

  • - Unique Feature: No early withdrawal penalty.

7. Simple IRA (Savings Incentive Match Plan for Employees)

  • - Eligibility: Small businesses.

  • - Employer Contributions: Mandatory.

  • - Contribution Limits: Lower than 401(k)s and 403(b)s.

8. SEP IRA (Simplified Employee Pension)

  • - Eligibility: Self-employed, freelancers, and small business owners.

  • - Contribution Limits: Higher than traditional and Roth IRAs.

9. Solo 401(k) or Individual 401(k)

  • - Eligibility: Self-employed individuals without full-time employees (spouse excluded).

  • - Contribution Limits: Can be higher due to employer/employee contribution capacity.

10. Thrift Savings Plan (TSP)

  • - Eligibility: Federal employees and members of the uniformed services.

  • - Features: Similar to a 401(k), but with lower costs.

11. Pension Plans (Defined Benefit Plans)

  • - Payment Structure: Predetermined, typically based on earnings and years of service.

  • - Risk: Borne by the employer.

12. Annuities

  • - Payment Structure: Can provide a steady income stream during retirement.

  • - Types: Variable, fixed, indexed, etc.