Types of Retirement Accounts: The Rundown

If you’re thinking of saving for retirement, you have many options for account types to use: a brokerage account, a high-yield savings account, etc. There are also a number of designated retirement account types, which are special because they offer tax benefits. U.S. legislation created these account types to nudge people to invest for retirement.¹ This article gives an overview of the main features of common types.

Defined benefit, aka “pension” vs defined contribution

Defined benefit retirement plans, or “pensions,” give workers a continuous, pre-defined payment from when they retire until they die. The employer does the investing. And the employer takes on market and liability risk. So, even if the market declines, retired workers get the payments the employer promised.²

Alternatively, in defined contribution plans (which are much more common in the U.S. today), workers do the investing and take on the risk. Ideally, by the time workers retire, their investment has grown, and they can use it to help pay for their living expenses when they stop working or are working less.

The descriptions of account types below refer to both Roth and pre-tax ("traditional") account types, unless otherwise specified. For more information about how a Roth account works, see the section What about “Roth” accounts? below.

Defined contribution employer-sponsored accounts

When an employer offers its workers a defined contribution retirement plan, workers can open an employer-sponsored account. Workers pay part of their salary (the “employee/participant contribution”) into an investment account. Sometimes employers make payments into the workers’ accounts, too (the “employer contribution”). Typically, employers hire a plan provider (like Just Futures). This plan provider gives the worker options for where to invest their money.

Depending on various characteristics (like nonprofit status or number of employees) an employer might offer one of the following account types:

401(k) – a 401(k) is a standard workplace retirement account that allows employees to contribute directly from their paycheck to a tax-advantaged investment account. Employers can also contribute.

403(b) – a 403(b) is similar to a 401(k), but it has a few key differences. While the IRS allows most businesses and nonprofits to offer their workers a 401(k), the tax code only allows certain 501(c)(3) tax-exempt organizations and public schools to offer a 403(b). Unlike 401(k) plans, 403(b) plans require “universal eligibility” (employers must offer the benefit to all staff). On the other hand, employers have fewer compliance requirements if they offer a 403(b) instead of a 401(k).

Note: If you’re an employer, and you want to automatically meet some IRS compliance requirements, consider making your 401(k) or 403(b) plan a safe harbor plan.

Solo(k) – also called an “Individual 401(k)” or “Self-Employed 401(k),” this kind of retirement account is for self-employed people who do not employ anyone else. If the spouse of the self-employed person works with them, then the spouse can have an account through this plan, too. The person who sets up this kind of plan is both the ”plan sponsor” (employer) and the “plan participant” (employee). And they have the option to make both employer and employee payments into the account.

Plans for government workers – the IRS has several categories of plans for government workers. Two popular kinds are 457(b), for state and local government workers, and Thrift Savings Plan (TSP), for federal employees. With a 457(b), employer contributions are rare.

SEP IRA – with a SEP IRA, only the employer can make contributions into the worker’s account. The worker cannot contribute. Self-employed individuals sometimes choose this kind of account instead of a Solo(k), because it can be easier to manage. In this case, the self-employed person makes payments into their SEP IRA as the employer.

SIMPLE IRA – a small employer (up to 100 employees) may offer its workers a SIMPLE IRA. Employers must make either a matching contribution or a guaranteed contribution into workers’ accounts. And employee contributions are allowed. But contribution limits are lower than for a 401(k).

Note: From an employer’s perspective, compliance requirements are simpler for a SEP IRA or SIMPLE IRA than for a 401(k). Generally, this simpler process means a SEP IRA or SIMPLE IRA costs less and is easier to operate. The downside is that a SEP IRA or SIMPLE IRA has fewer plan design options than a 401(k).

Outside the workplace: Individual Retirement Account (IRA)

If your employer doesn’t offer a retirement plan, or if you want to invest outside of/in addition to a workplace retirement plan, you can open an IRA. You can do this through various financial service providers. For example, if you like Just Futures’ approach to investing, which aligns with social justice values, consider opening an IRA with us!

An IRA works much the same as an employer-sponsored retirement account. A worker puts money in and invests that money. Over time, the investments have a chance to grow in a tax-advantaged way. And, like with many employer-sponsored accounts, taking the money out before retirement often comes with a penalty.

An IRA does have some differences from an employer-sponsored account:

• Instead of putting money in through your paycheck, you fund the account directly from your checking account. You can do this on a schedule (say, once per month) or as a bigger “lump sum” (once per year, for example).
• An IRA doesn't have employer contributions.
• The maximum yearly allowed payments into an IRA is typically lower than for employer-sponsored accounts.
• For IRAs, the IRS sets income limits on being able to get the tax benefits or being able to contribute at all. For example, in 2025, if your tax filing status is single and you have access to a workplace retirement plan, you can have a modified adjusted gross income (MAGI) up to $79,000 and still get the full tax deduction for contributing to a traditional (also called “pre-tax”) IRA. But if you earn more than that, you may only be eligible for a partial deduction. And if your MAGI is more than $89,000, you may not qualify for any deduction on your contributions to the account. These limits can change yearly, so consult the IRS rules or a tax advisor if you have questions.

Note: for all the accounts described above, the IRS sets yearly maximum contribution limits. These limits change over time.

What about “Roth” accounts?

At Just Futures, we often get questions about what exactly a Roth account is. Here’s an explanation:

Defined contribution employer-sponsored plans and IRAs – like the types described above – often offer both a pre-tax (“traditional”) and a Roth option within that account type. So, you could contribute to a Roth IRA on your own, as well as a Roth 401(k) through your job. Roth describes the tax treatment of the account, rather than the account type.

But sometimes account providers only offer a pre-tax version. For example, while the IRS tax code recently changed to allow Roth versions of SEP IRAs and SIMPLE IRAs, many account providers are waiting for IRS guidance before rolling out Roth versions of these two account types. Your plan provider should be able to tell you whether you have the choice to invest through a Roth version of your retirement account.

Employer-sponsored accounts and IRAs are “tax-advantaged,” meaning you typically only pay taxes on the assets in the account one time.*** Roth and pre-tax are the two most common types of tax advantages. With a Roth retirement account, you typically get to take money out of the account tax-free. If you’re at least age 59 ½ and have had the account for at least 5 years, or if you qualify for an exception, then, when you’re in retirement, and you withdraw funds to pay for your expenses, the IRS won’t charge you income tax on those withdrawals. Alternatively, with a pre-tax retirement account, you typically get the tax benefit now, as opposed to later. Specifically, in the year you earn the money you contribute to the account, the IRS doesn’t charge you income tax on those contributions. If you’re deciding between investing in a Roth or a pre-tax account, learn more here.

Saving sooner is often better

Whether you have access to an employer-sponsored plan or are thinking about opening an IRA, we at Just Futures encourage you to begin saving today, if you can. The sooner you begin saving, the more time you have for your investment to grow, and the more you may benefit from the tax advantages.

Hungry for more knowledge? Read on to learn about main factors in deciding between a 401(k)/403(b) or an IRA.

If you don’t have a retirement investing account, or if your employer contracts with a different retirement plan provider, we’d love to show you Just Futures’ services! Contact us: info@justfutures.com.

~Lisa, Manager of Coalitions and Worker Power

¹Many retirement accounts have penalties for taking out money before age 59 ½, though the IRS makes some exceptions.

²Defined benefit payments are subject to an employer’s ability to meet their financial obligations.

³If you withdraw money before you reach age 59 ½, then the IRS considers this action an “early withdrawal.” You may have to pay a 10% penalty. This article has more information about factors to consider before taking an early withdrawal. Further, if you convert a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings. Consider discussing tax issues with a qualified tax advisor.

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Published August 14, 2025