Retirement plans fall into two broad categories: employer-sponsored plans, where your workplace sets up and often contributes to an account on your behalf, and individual plans, which you open and fund yourself. Within those categories, you’ll find roughly a dozen common plan types, each with its own contribution limits, tax treatment, and eligibility rules. Here’s how they all work and who they’re designed for.
Defined Benefit vs. Defined Contribution Plans
Before diving into specific plan names, it helps to understand the two structural models that nearly every retirement plan falls under.
A defined benefit plan (the traditional pension) promises you a specific monthly payment in retirement. That payment is usually calculated with a formula based on your salary and years of service. For example, a plan might pay 1% of your average salary over your last five working years for each year you worked there. The employer bears all the investment risk: if the plan’s investments underperform, the employer still owes you the promised benefit. Pensions have become rare in the private sector but remain common in government and some unionized industries.
A defined contribution plan, by contrast, doesn’t guarantee any particular payout. Instead, you (and often your employer) put money into an individual account, and the balance grows or shrinks based on how the investments perform. You bear the investment risk. The 401(k), 403(b), and IRA are all defined contribution plans. Most workers today build their retirement savings this way.
401(k) Plans
The 401(k) is the most widely available employer-sponsored retirement plan in the private sector. Your employer deducts contributions from your paycheck before (or after) taxes are applied, and many employers match a portion of what you put in. For 2026, you can contribute up to $24,500 in employee deferrals. If you’re 50 or older, you can add a catch-up contribution on top of that.
In a traditional 401(k), contributions come out of your paycheck before income tax is withheld. That lowers your taxable income today, but you’ll pay ordinary income tax on every dollar you withdraw in retirement. Many employers also offer a Roth 401(k) option, where contributions are made with after-tax dollars. You don’t get a tax break now, but qualified withdrawals in retirement (after age 59½, with the account open at least five years) come out completely tax-free, including all the investment growth.
Withdrawals before age 59½ generally trigger a 10% early withdrawal penalty on top of any income tax owed. Hardship withdrawals are allowed for immediate and heavy financial needs like medical expenses, tuition, or preventing eviction, but the bar is high and the tax consequences still apply.
403(b) and 457(b) Plans
These plans work similarly to a 401(k) but serve different employers. A 403(b) is offered by public schools, hospitals, and other tax-exempt organizations. A governmental 457(b) is offered by state and local governments. Both share the same 2026 employee contribution limit of $24,500.
The biggest practical difference is in the withdrawal rules. A governmental 457(b) plan does not impose the 10% early withdrawal penalty when you leave your job and take distributions before 59½. You’ll still owe income tax, but avoiding that extra penalty makes the 457(b) more flexible if you plan to retire early or change careers. A 401(k) or 403(b), on the other hand, locks you into the 59½ age threshold for penalty-free access (with limited exceptions). Some government employees have access to both a 457(b) and a 403(b), which lets them contribute the maximum to each plan in the same year.
Traditional IRA
A traditional IRA is an individual retirement account you open on your own at a brokerage, bank, or other financial institution. For 2026, the annual contribution limit is $7,500, with an additional $1,100 catch-up contribution if you’re 50 or older. Anyone with earned income can contribute, but the tax deduction depends on whether you or your spouse are covered by an employer plan and how much you earn.
If neither you nor your spouse has a workplace retirement plan, your full contribution is tax-deductible regardless of income. If you are covered by a workplace plan, the deduction phases out between $81,000 and $91,000 of modified adjusted gross income for single filers, and between $129,000 and $149,000 for married couples filing jointly in 2026. If you’re not covered but your spouse is, the phase-out range is $242,000 to $252,000. Above those thresholds, you can still contribute, but you won’t get the upfront tax break.
Withdrawals in retirement are taxed as ordinary income. As with a 401(k), taking money out before 59½ typically means paying both income tax and a 10% penalty.
Roth IRA
A Roth IRA flips the tax equation. You contribute money you’ve already paid taxes on, so there’s no deduction today. In return, qualified withdrawals in retirement are entirely tax-free, including decades of investment gains. That makes the Roth IRA especially powerful for younger savers who expect to be in a higher tax bracket later, or for anyone who wants tax-free income in retirement.
The 2026 contribution limit is the same $7,500 (plus $1,100 catch-up for those 50 and over), but eligibility to contribute phases out at higher incomes. For single filers, the phase-out range is $153,000 to $168,000. For married couples filing jointly, it’s $242,000 to $252,000. Above those levels, you can’t contribute directly, though a strategy called a backdoor Roth (contributing to a traditional IRA and then converting it) remains an option for high earners.
One practical advantage: because you’ve already paid tax on your contributions, you can withdraw your original contributions (not the earnings) at any time without tax or penalty. This gives the Roth IRA a degree of flexibility that other retirement accounts lack.
SEP IRA
A Simplified Employee Pension IRA is designed for self-employed individuals, freelancers, and small business owners. Only the employer (which is you, if you’re self-employed) makes contributions. There are no employee deferrals. The contribution limit is 25% of net self-employment income, up to $70,000 for 2025. A SEP IRA is easy to set up and administer, which makes it popular with solo practitioners and small firms.
If you have employees, you’re required to contribute the same percentage of compensation for each eligible worker that you contribute for yourself. That can get expensive quickly, so businesses with several employees often look at other plan types. Contributions are tax-deductible, and withdrawals in retirement are taxed as ordinary income, just like a traditional IRA.
SIMPLE IRA
A Savings Incentive Match Plan for Employees IRA is built for small businesses, typically those with 100 or fewer employees. Unlike a SEP, a SIMPLE IRA allows employees to make their own salary-deferral contributions. The employer is required to either match employee contributions (usually dollar for dollar up to 3% of compensation) or make a flat 2% contribution for all eligible employees regardless of whether they participate.
Contribution limits are lower than a 401(k), which makes the SIMPLE IRA less powerful for high earners but simpler and cheaper for the employer to maintain. There’s no annual IRS filing requirement, and administrative costs are minimal compared to running a full 401(k) plan. One catch: withdrawals within the first two years of participation face a 25% early withdrawal penalty instead of the usual 10%.
Solo 401(k)
A solo 401(k), also called an individual 401(k), is available only to business owners with no employees other than a spouse. It combines the employee and employer sides of a regular 401(k) into one plan. You can defer up to $23,500 as the employee (2025 figures) and add up to 25% of net self-employment income as the employer, with a combined cap of $70,000.
That dual contribution structure often lets you shelter more income than a SEP IRA, especially at lower income levels. A solo 401(k) also allows Roth contributions on the employee side, giving you the option of tax-free growth. The trade-off is slightly more paperwork: once the plan’s assets exceed $250,000, you’ll need to file an annual form with the IRS.
Choosing Traditional vs. Roth Tax Treatment
Many of these plans offer either traditional (pre-tax) or Roth (after-tax) contribution options, and the choice between them is one of the most consequential decisions you’ll make. With traditional contributions, you reduce your taxable income now and pay tax when you withdraw in retirement. With Roth contributions, you pay tax now and withdraw tax-free later.
The right call depends on whether you expect your tax rate to be higher or lower in retirement. If you’re early in your career and earning a modest salary, Roth contributions lock in today’s lower tax rate. If you’re in your peak earning years and in a high bracket, traditional contributions save you the most in taxes right now. Many people split contributions between both types to give themselves flexibility in retirement, since drawing from a mix of taxable and tax-free accounts lets you manage your tax bill year by year.
How Plans Stack Up on Contribution Limits
- IRAs (Traditional and Roth): $7,500 for 2026, plus $1,100 catch-up if 50 or older
- 401(k), 403(b), and 457(b): $24,500 employee deferral for 2026, with catch-up contributions for older workers
- SEP IRA: Up to 25% of compensation, capped at $70,000 (2025)
- Solo 401(k): Up to $70,000 combined employee and employer contributions (2025)
You can often use more than one plan type at the same time. Contributing to both a workplace 401(k) and a Roth IRA, for example, is allowed as long as you meet the income requirements. The key is that each plan has its own contribution limit, and the IRA deduction rules change if you’re also covered by an employer plan. Stacking plans is one of the most effective ways to accelerate retirement savings, especially for self-employed workers who can pair a SEP or solo 401(k) with a personal IRA.