The most common retirement plan offered by employers is the 401(k), but it’s far from the only option. Depending on where you work, your employer might offer a 403(b), a 457(b), a SIMPLE IRA, or a SEP IRA. Each works a little differently, but they all share the same basic idea: your employer sets up an account where you (and sometimes your employer) can contribute money that grows tax-advantaged until you retire.
401(k) Plans
A 401(k) is the standard retirement plan at most private-sector companies. You choose a percentage of your paycheck to contribute, and the money goes into an investment account in your name. For 2026, you can contribute up to $24,500 per year. If you’re 50 or older, you can add an extra $8,000 in catch-up contributions, bringing your total to $32,500. Workers who are 60, 61, 62, or 63 get an even higher catch-up limit of $11,250 instead of $8,000.
Many employers match a portion of what you contribute. A common structure is matching 50 cents for every dollar you put in, up to 6% of your salary, though the exact formula varies widely. The money you contribute is always yours, but employer matching contributions are subject to a vesting schedule, meaning you may need to work at the company for a certain number of years before you fully own those matching dollars.
403(b) Plans
A 403(b) works almost identically to a 401(k), but it’s offered by public schools, hospitals, churches, and other tax-exempt organizations. The contribution limits are the same: $24,500 for 2026, with the same catch-up rules. If you work at a university or nonprofit and see a 403(b) in your benefits package, think of it as the nonprofit world’s version of a 401(k). Some 403(b) plans invest through annuity contracts rather than mutual funds, which can mean different fee structures than a typical 401(k).
457(b) Plans
State and local government employees often have access to a 457(b) plan. The contribution limit matches the 401(k) at $24,500 for 2026. One notable difference: withdrawals from a governmental 457(b) are not subject to the 10% early withdrawal penalty that hits 401(k) and 403(b) accounts if you take money out before age 59½. That makes the 457(b) more flexible if you plan to retire or leave your job before that age. Some government workers can contribute to both a 457(b) and a 403(b) simultaneously, effectively doubling their annual savings capacity.
SIMPLE IRA Plans
Small businesses with 100 or fewer employees sometimes offer a SIMPLE IRA (Savings Incentive Match Plan for Employees) instead of a 401(k). These plans are cheaper and easier for employers to administer. The tradeoff is a lower contribution limit: $17,000 for 2026, with a $4,000 catch-up for workers 50 and older (or $5,250 for those aged 60 through 63). Employers are generally required to either match employee contributions dollar-for-dollar up to 3% of pay or make a flat 2% contribution for all eligible employees. One significant benefit: all employer contributions to a SIMPLE IRA vest immediately, so you own every dollar from day one.
SEP IRA Plans
A SEP (Simplified Employee Pension) IRA is primarily funded by the employer, not the employee. It’s popular with self-employed individuals and small business owners because it allows large contributions with minimal paperwork. Only the employer contributes, and the contributions vest immediately. SEP IRAs are less common at companies with many employees because the employer must contribute the same percentage of pay for every eligible worker.
Traditional vs. Roth Contributions
Many 401(k), 403(b), and 457(b) plans let you choose between traditional and Roth contributions, and the difference comes down to when you pay taxes.
With traditional contributions, your money goes in before income tax is applied, lowering your taxable income for the year. You pay taxes later when you withdraw the money in retirement. With Roth contributions, you pay income tax now, but qualified withdrawals in retirement are completely tax-free, including all the investment growth. A withdrawal is “qualified” once you’ve had the Roth account for at least five years and you’ve reached age 59½.
Another difference worth knowing: traditional accounts require you to start taking minimum distributions at a certain age, while Roth accounts in employer plans no longer require distributions during your lifetime. If your employer offers matching contributions, those matches may be made on a pre-tax basis regardless of whether your own contributions are Roth, meaning the match portion will be taxed when you withdraw it.
How Vesting Schedules Work
Your own contributions to any employer plan are always 100% yours. Vesting only applies to employer contributions, like matching dollars or profit-sharing deposits. A vesting schedule determines what percentage of those employer contributions you own based on how long you’ve worked at the company.
The two standard structures are cliff vesting and graded vesting. With cliff vesting, you own 0% of employer contributions until you hit three years of service, at which point you jump to 100%. With graded vesting, your ownership increases gradually: 20% after two years, 40% after three, and so on until you’re fully vested at six years. If you leave the company before you’re fully vested, you forfeit the unvested portion of employer contributions.
SEP IRAs and SIMPLE IRAs are the exceptions. All contributions to these plans vest immediately, so there’s no waiting period.
Automatic Enrollment
Under the SECURE 2.0 Act, new 401(k) and 403(b) plans established after December 29, 2022, are required to automatically enroll eligible employees. This means you’ll be contributing to the plan by default unless you actively opt out. Automatic enrollment rates typically start between 3% and 10% of your salary and may increase by 1% each year up to a cap. If you’d prefer a different contribution rate, or don’t want to participate at all, you can change your election at any time.
Choosing the Right Contribution Level
If your employer offers matching contributions, contributing at least enough to capture the full match is one of the most straightforward financial moves you can make. Skipping the match means leaving free money on the table. Beyond that, the right contribution level depends on your budget and goals, but the annual limits set a ceiling: $24,500 for 401(k), 403(b), and 457(b) plans, or $17,000 for SIMPLE IRAs, with additional catch-up room for workers 50 and older.