Types of Retirement Plans: Which Is Best for You?

Choosing the Best Retirement Plan for You

Key Points

The 401(k) contribution limit rises to $24,500 in 2026; higher contribution limits are available if you're 50 or older.
Many employer-sponsored retirement plans match part of your contributions.
Anyone who earns income from working can contribute to an individual retirement account (IRA).

Choosing the right home for your retirement savings is as important as saving for retirement in the first place. Your retirement plan dictates how much you can contribute annually, how it's taxed, how withdrawals work, what you can invest in, and how much you pay in fees.

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To help you decide which retirement plans work best for you, consider the following options:

401(k)
403(b)
457
IRA
Roth IRA
Nondeductible IRA
Solo 401(k)
SEP IRA
SIMPLE IRA
Keogh plan

We’ll cover employer-sponsored plans, individual retirement accounts, and plans for self-employed individuals and small business owners.

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If you hope to get the most out of your 401(k), contribute as much as you are able to and choose your investments carefully to minimize fees. You should also claim any employer match that's available and watch out for your company's vesting schedule, which determines when you get to keep employer-matched funds.

Tax benefits: Most 401(k)s are tax-deferred, which means your contributions reduce your taxable income this year but you pay taxes on your distributions. This is usually smart if you believe you'll be in a lower tax bracket in retirement than you are today.
But Roth 401(k)s are also growing in popularity. Contributions to these accounts don't reduce your taxable income for the year, but distributions are tax-free. You'll save more in taxes with a Roth 401(k) if you're in the same or a lower tax bracket today than you'll be in once you retire.
401(k) loans: Some plans allow 401(k) loans. This enables you to borrow against your retirement savings and pay back that money with interest over time. But if you fail to pay back everything by the end of the loan term, the government taxes the outstanding balance as a distribution.

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403(b) Retirement Plans for Teachers & Non-Profit Employees

Teachers and nonprofit workers can consider this retirement plan.

Understanding 457 Plans

Government employees can take advantage of this retirement plan.

What Are Profit Sharing Plans?

This type of retirement plan lets employers share the wealth with employees.

Roth 401(k): Definition, Basics, and Limits

Sponsored by your employer, these retirement plans are funded with pre-tax money.

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The greater variety of options, coupled with the fact that you can open an IRA with any broker, means you may be able to keep your fees lower with an IRA than you could with the plans listed above.

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Getting the most out of your IRA involves choosing your broker and investments carefully to minimize fees, while keeping your investments diverse and well-matched to your risk tolerance. You should also choose the right type of IRA -- traditional or Roth -- based on which you think will give you the greatest tax advantages, then contribute as much as you can each year.

You may contribute to an employer-sponsored retirement plan and an IRA in the same year.

Tax savings: Traditional IRAs are tax-deferred -- your contributions are pre-tax, so they lower your taxable income for the year and you pay taxes on distributions. Roth IRAs use after-tax dollars, so your contributions have no effect on your taxes this year, but you can then withdraw your savings tax-free in retirement.
Contribution limits: You can only contribute up to $7,000 to an IRA in 2025, and $7,500 in 2026. If you're 50 or older, you can contribute an extra $1,000 in 2025, and an additional $1,100 in 2026. You may contribute to tax-deferred and Roth accounts at the same time, but you can't make more than the annual contribution limit in combined traditional and Roth IRA contributions for the same tax year. So if you're younger than 50, your combined traditional and Roth contributions can't exceed $7,500 in 2026.

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Self-employed individuals and small business owners may contribute to an IRA, but there are also several special retirement plans available just for them that let them contribute more money per year, since they don't receive the benefit of an employer-sponsored retirement plan. Here's a look at some of the most common retirement plans for small business owners and the self-employed.

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Solo 401(k)

A solo 401(k) is a type of 401(k) that's only available to self-employed individuals without full-time employees. Contribution limits are higher -- up to $70,000 in 2025 and $72,000 in 2026, plus additional catch-up contributions for workers 50 and older. There are no income restrictions on who can open a solo 401(k), and the account may be traditional or Roth.

SEP IRA

A SEP IRA is a type of IRA available to self-employed individuals and small business owners. You may contribute up to the lesser of 25% of your compensation, or $70,000 (2025) and $72,000 (2026). If you have employees, you must contribute the same percentage of your employees' income to their SEP IRAs as you do to your own.

SIMPLE IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is designed for small businesses with fewer than 100 employees. You may contribute up to $16,000 in 2025 or $17,000 in 2026, plus extra catch-up contributions if you're 50 or older. Employers are required to contribute some money to employees' SIMPLE IRAs, though they can choose between a 3% matching contribution or a 2% nonelective contribution.

Keogh plan

A Keogh plan is a type of retirement plan available to self-employed individuals and unincorporated businesses, though not to independent contractors. They are tax-deferred and can be either defined-benefit, like a pension where the employer does the funding, or defined-contribution, where employees do the funding.

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About the Author

Robin Hartill, CFP, is a contributing writer at The Motley Fool. Robin’s work has also been published by Yahoo Finance, USA Today, and Penny Hoarder. She is a graduate of the University of Florida.

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