Retirement Plan Types and Features

Traditional 401K/403B

A traditional 401K/403B plan is a tax-advantaged plan that offers a way to save for retirement. With these plans an employee contributes to the plan with pre-tax wages, meaning contributions are not considered taxable income. Many companies offer a match up to a certain percentage of the employees’ contribution. The plan allows these contributions to grow tax-free until they’re withdrawn at retirement. At retirement, distributions create a taxable gain, though withdrawals before age 59 ½ may be subject to taxes and additional penalties.

Roth 401K/403B

Same as the Traditional 401K/403B however an employee contribute after-tax dollars and gains are not taxed as long as they are withdrawn after age 59 ½ or if certain conditions are met.

Simple IRA

A simple IRA is another type of employee retirement plan, for small businesses with 100 or fewer employees. If you’re an employee and you participate in your employer’s Simple IRA, you’ll generally receive some contributions from your employer. Simple stands for “Savings Incentive Match Plan for Employees”; employers must either match employee contributions up to 3% of the employee’s salary or contribute 2% of an employee’s salary regardless of any contribution from the employee.

Solo 401K/Roth 401K

Solo 401(k) plans, also known as individual or one-participant 401(k) plans, can help maximize retirement savings for self-employed people and business owners that don’t have employees. They work a bit like regular 401(k) plans, except that you can boost your savings by contributing as both employer and employee.  As an employee, you can contribute up to 100% of self-employment income, to a max of $20,500 in 2023 or $27,000 if you’re age 50 or over. Then you can put on your employer hat and chip in up to an additional 25% of your business’ income. Depending on your income level, this dual contribution formula may let you contribute more than with other retirement plans, such as SEP IRAs, although the maximum contribution limits are the same

SEP-IRA

SEP IRA accounts are one of the best ways for self-employed people, small business owners, and freelancers, to contribute to their retirement savings. SEP IRA contributions are made pre-tax and If you’re self-employed, you can contribute up to 25% of net income.

Traditional IRA

An account established and funded by individual contributions or an individual retirement plan transferred from another financial institution such as 401K/403B.  A traditional IRA is a tax-advantaged plan that allows tax breaks while you save for retirement. The IRA allows these contributions to grow tax-free until the account holder withdraws them at retirement and they become taxable. Earlier withdrawals may leave the employee subject to additional taxes and penalties.

Roth IRA

An account established and funded by individual contributions or an individual retirement plan transferred from another financial institution such as Roth 401K/403B. Contributions to a Roth IRA are made with after-tax money, meaning you’ve paid taxes on money that goes into the account. In exchange, you won’t have to pay tax on any contributions and earnings that come out of the account at retirement as long as certain conditions are met.