Types of Retirement Plans: Which Is Best for You?

Choosing the Best Retirement Plan for You

By Kailey Hagen – Updated Sep 9, 2025 at 11:56 AM | Fact-checked by Margo Winton Parodi

Key Points

401(k)s allow high contributions, offer tax deferral, and often include employer matching.
IRAs provide a broader range of investments and potentially lower fees.
Self-employed individuals can use plans like SEP IRAs for higher contribution limits.

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.

Loading paragraph...

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.

Loading paragraph...

Woman sitting at table with computer and paying bills — Image source: Getty Images

Loading paragraph...

Table by author.
401(k) pros	401(k) cons
High contribution limits	Limited investment options
Tax savings	Fees can be high
Employer matching	Early withdrawal penalties before 59 1/2
Loans available with some plans	Loans are taxed as early distribution if they aren’t paid back on time

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. Employer-matched funds are still tax-deferred with these plans.
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.

Loading paragraph...

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.

Loading paragraph...

Did you know

Loading callout...

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.

Loading paragraph...

Table by author.
IRA pros	IRA cons
Wide variety of investment options	Low contribution limits
Almost anyone can contribute	High-income earners cannot contribute to Roth IRAs
Tax savings	Early withdrawal penalties before 59 1/2
Fees can be lower than with employer-sponsored plans	No employer matching

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.

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. If you're 50 or older, you can contribute an extra $1,000. You may contribute to an employer-sponsored retirement plan and an IRA in the same year, and you may contribute to tax-deferred and Roth accounts at the same time, but you may not make more than $7,000 (or $8,000 if 50 or older) in combined traditional and Roth IRA contributions for the same tax year.

Loading paragraph...

Roth IRAs

As mentioned above, Roth IRAs are funded with after-tax dollars, so you pay taxes on your contributions now to avoid taxes on your distributions.

Nondeductible IRAs

High-income earners who also have an employer-sponsored retirement plan may not deduct their traditional IRA contributions from their taxes, so they end up with a nondeductible IRA.

Loading paragraph...

Smiling person wearing apron and standing outside coffee shop has arms folded. — Image source: Getty Images

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.

Loading paragraph...

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 $66,000 (or $73,500 if you're 50 or older) in 2023, and $69,000 (or $76,500 if you're 50 or older) in 2024 -- because you can make contributions as both employee and employer. 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 $66,000 (2023) or $69,000 (2024). 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 $15,500 in 2023, and $16,000 in 2024, plus an extra $3,500 in both years 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.

Loading paragraph...

Expert Advice

About the Author

Kailey Hagen, CFP, is a contributing Motley Fool retirement analyst covering Social Security, Medicare, and retirement planning. Before The Motley Fool, Kailey was a research analyst for Reviews.com focusing on credit and banking products. She is a Certified Financial Planner® and holds a bachelor’s degree in English from the University of Wisconsin-Madison.

TMFKailey

The Motley Fool has a disclosure policy.