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Best Retirement Plans to Consider

Dahna Chandler • May 29, 2024

A married couple plan for their retirement at home.

Planning for retirement is one of the most important financial decisions you’ll make. The earlier you save, the more time your money has to grow. But with so many retirement investment plans available, it can be hard to know which are the best retirement plans for you.

Let’s break down the best retirement plans to consider, including individual retirement accounts, options for small businesses and self-employed individuals, and the key differences between IRAs and 401(k)s.

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Top choices for individual retirement accounts

If you don’t have access to an employer-sponsored retirement plan or want to save more on your own, individual retirement accounts (IRAs) are a smart option. Here are some of the best individual retirement accounts to consider:

1. Fixed annuities

“Fixed annuities” provide a guaranteed stream of income in retirement. It’s a type of insurance contract that you contribute to during your working years, and the annuity provider invests those funds.

When you retire, you receive regular payments based on the terms of your contract. You can also receive your payment in a lump sum. Fixed annuities can help provide a predictable income in retirement, but returns may be lower compared to other investment options.¹, ²

2. Roth IRA

With a Roth IRA, you contribute after-tax dollars, but your money grows tax-free. Your eligibility to contribute to your Roth IRA is based on your income which usually changes each tax year. If you’re single, your Modified Adjusted Gross Income (MAGI) must be lower than $161,000 for the 2024 tax year. If you’re married and file jointly, your MAGI must be lower than $240,000 for 2024.³ You can withdraw your contributions at any time without penalty, and qualified withdrawals – those taken at age 59½ and older – are also tax-free, provided you had the account for at least five years.

Roth IRAs are usually the best retirement plans for people who expect to be in a higher tax bracket in retirement.

3. Traditional IRA

Traditional IRAs offer tax-deferred growth, meaning you don’t pay taxes on your contributions or earnings until you withdraw the money in retirement. Contributions may also be tax deductible, depending on your income and whether you have an employer-sponsored plan.

Traditional IRAs may be the right fit if you expect to be in a lower tax bracket in retirement.

4. Spousal IRA

If you’re married and one spouse doesn’t work or has little income, a spousal IRA allows the working spouse to contribute to an IRA for the non-working spouse. This can be a traditional or Roth IRA. Spousal IRAs are a smart way for couples to boost their combined retirement savings.

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Top choices for employer-sponsored retirement plans

If your employer offers a retirement plan, it’s usually beneficial to take part, especially if they match a portion of your contributions. Here are some common employer-sponsored retirement plans:

1. Roth 401(k)

Some employers offer both a Roth 401(k) option and a traditional 401(k). With a Roth 401(k), you contribute income that has already been taxed, but you’re not taxed on any investments that grow.

Money taken out after age 59½ and older is also tax-free. Your account must be open for at least five years, though. If you expect to be in a higher tax bracket when you retire, then a Roth 401(k) may be worth considering.

2. Traditional 401(k)

With a traditional 401(k), you contribute income you’ve already paid taxes on, but your money grows without paying taxes on those contributions.

Many employers also offer matching contributions. You pay taxes on your retirement withdrawals. If you think you’ll be in a lower tax bracket when you retire, a traditional 401(k) could be a good fit.

3. 457(b) & thrift savings plan

If you’re a state or local government employee or a nonprofit worker, you may have access to 457(b) plans. If you’re a federal worker, then you may have access to a thrift savings plan (TSPs).

Both employer-sponsored retirement plans offer tax-deferred growth, and contributions are made with pre-taxed money, meaning income you have not paid income tax on. While 457(b) plans have no early withdrawal penalty, TSPs have a 10% penalty for withdrawals before age 55.,

4. 403(b)

Public schools, colleges, universities, and some nonprofits offer 403(b) plans. With these plans, you make automatic contributions from your paycheck with pre-tax dollars, lowering your taxable income.

Investment options may be more limited compared to 401(k)s. Withdrawals after age 55 or in retirement are taxed as regular income.

5. Pension plans

A pension or defined-benefit plan is a retirement plan that your employer funds for you while you work for them. This fund grows over time and pays you a regular income once you retire.

Check with your employer about pension plans that might be available to you since some employers still offer them. If your job offers a pension plan, make sure you know the details, like how long you need to work there to get the money, how much you can put in, and how you’ll get the money when you retire.

Top retirement plans for small businesses and self-employed people

If you’re a small business owner or self-employed, you have several retirement plan options:

1. Solo 401(k)

Also known as an individual 401(k), a solo 401(k) is for self-employed individuals or business owners with no employees. You can contribute as both an employee and an employer, allowing you to save more. Contributions are tax-deductible, and your money grows tax-deferred.

2. Simple IRA

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is for businesses with 100 or fewer employees. Both the employer and employee can contribute. Employers must either match employee contributions up to 3% of salary or make a 2% nonelective contribution for each employee. Contributions are tax-deductible, and growth is tax-deferred.

3. SEP IRA

A Simplified Employee Pension (SEP) IRA allows employers to set aside money for their retirement and their employees’ retirement. Only employers can contribute, and contributions are tax-deductible to the employer.¹⁰ SEP IRAs are easy to set up and have higher contribution limits than traditional or Roth IRAs.

4. Payroll deduction IRA

With a payroll deduction IRA, employees can contribute to a traditional or Roth IRA through payroll deductions. The employer sets up the plan with a financial institution but doesn’t contribute or have other responsibilities.¹¹ This is a simple way for small businesses to offer a retirement plan.

How to plan your investments for retirement

Once you’ve chosen a retirement account, work to maximize your savings. Here’s how to optimize your retirement investments:

1. Maximize 401(k) match

If your employer offers a 401(k) match, contribute enough to get the full match. This is essentially free money and can significantly boost your retirement savings.

Ask your employer if they are matching your contributions. Some may not if you don’t ask.

2. Fully fund your 401(k)

If you have even more money to save, consider contributing the maximum amount to your 401(k). For 2024, the contribution limit is $23,000 (or $30,500 if you’re 50 or older).³ Maxing out your 401(k) can supercharge your retirement savings.

3. Max out your IRA

If you have extra money to save after contributing to your 401(k), consider maxing out an IRA. For 2024, you can contribute up to $7,000 to a traditional or Roth IRA (or $8,000 if you’re age 50 or older).³

What to consider when choosing a retirement plan

When deciding the best retirement plans for you, consider these factors:

  • When you plan to retire, and how long you have to save before that
  • Your employment situation (employed, self-employed, small business owner)
  • Whether your employer offers a retirement plan and matching contributions
  • Your tax situation now and in retirement
  • Contribution limits and rules for each type of account
  • Investment options and fees associated with each plan
  • How much you can reasonably save each month
  • Your other financial obligations

Research your options and consider talking to a financial advisor to help you evaluate your options.

Carefully consider each option before choosing

There are several factors to consider when choosing the best retirement plan for you. Individual retirement accounts like fixed annuities, Roth IRAs, and traditional IRAs can be helpful options if you’re saving on your own.

If you have access to an employer-sponsored plan, especially one with matching contributions, it’s usually wise to participate. And if you’re a small business owner or self-employed, you have special retirement plan options like solo 401(k)s, SIMPLE IRAs, SEP IRAs, and payroll deduction IRAs.

No matter which plan you choose, aim to maximize your savings by taking advantage of employer matches and catching up on contributions if you’re 50 or older.

Do your research and talk with a financial advisor to help you make an informed decision. Choose one who specializes in your situation to help you select the best retirement plan.

FAQs

Is an IRA enough for retirement?

That depends on your individual circumstances and retirement goals. IRAs have lower contribution limits than 401(k)s, so relying solely on an IRA may not provide enough retirement savings for everyone. Save as much as you can across multiple retirement accounts, so you have enough money after leaving work for good.

At what age should you start thinking about retirement?

It’s never too early to think about retirement. The earlier you save, the more time your money has to grow through the power of compound interest. It’s best to start planning for retirement in your 20s or 30s. But, even if you don’t, start when you can, even after 50 and take advantage of catch up contributions.

How should you plan for retirement?

To plan for retirement, estimate how much income you’ll need to cover your expenses after work ends. Then, choose a retirement account (or multiple accounts) and aim to save as much as possible. Investing your savings wisely in a diversified portfolio can help your money grow. Regularly reviewing your plan and making necessary adjustments can also help keep you on track.

Can you contribute to a 401(k) and an IRA?

Yes, you can contribute to a 401(k) and an IRA in the same year. However, your ability to deduct traditional IRA contributions may be limited if you also have a workplace retirement plan and your income exceeds certain thresholds. Roth IRA contributions are not deductible but are subject to income limits.

What's the difference between a traditional and Roth IRA?

The major difference is when you pay taxes. With a traditional IRA, contributions are tax-deductible, but you pay taxes on withdrawals in retirement. With a Roth IRA, you make contributions after your income is taxed, but qualified withdrawals – those at 59½ and older – are tax-free.

What happens to my 401(k) if I change jobs?

If you have a 401(k) with your current employer, you typically have a few options when you change jobs. You can leave the money in your former employer’s plan, roll it over to your new employer’s plan, roll it into an IRA, or cash it out (which may trigger taxes and penalties).

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¹ Information from Time’s “The Pros and Cons of Annuities” as of May 14, 2024: https://time.com/personal-finance/article/annuities-pros-cons/ 

² Information from Investopedia’s “Types of Fixed Annuities” as of May 14, 2024: https://www.investopedia.com/articles/retirement/05/071205.asp

³ Information from IRS’s “401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000” as of May 14, 2024: https://www.irs.gov/newsroom/401k-limit-increases-to-23000-for-2024-ira-limit-rises-to-7000

⁴ Information from the IRS's “Roth account in your retirement plan” as of May 14, 2024: https://www.irs.gov/retirement-plans/roth-acct-in-your-retirement-plan

⁵ Information from the IRS’s “IRA Deduction Limits” as of May 14, 2024: https://www.irs.gov/retirement-plans/ira-deduction-limits

⁶ Information from Fidelity’s “What is a 457(b) plan and how does it work?” as of May 14, 2024: https://www.fidelity.com/learning-center/smart-money/what-is-a-457b

⁷ Information from Investopedia’s “Thrift Savings Plan (TSP): How It Works and Investments” as of May 14, 2024: https://www.investopedia.com/terms/t/thrift_savings_plan.asp

⁸ Information from Investopedia’s “How a 403(b) Works After Retirement” as of May 14, 2024: https://www.investopedia.com/articles/personal-finance/012116/how-403b-works-after-retirement.asp

⁹ Information from the IRS’s “Retirement Plans for Self-Employed People” as of May 14, 2024: https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people 

¹⁰ Information from the Department of Labor’s “SEP Retirement Plans For Small Businesses” as of May 14, 2024: https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/publications/sep-retirement-plans-for-small-businesses

¹¹ Information from the IRS’s “Payroll Deduction IRA” as of May 14, 2024: https://www.irs.gov/retirement-plans/plan-sponsor/payroll-deduction-ira

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