Understanding the types of retirement plans
There are two basic types of retirement plans: employer plans and Individual Retirement Accounts (IRAs).
- Employer plans are retirement plans provided through your job. Businesses often provide pensions or 401(k) plans. Employees of nonprofit groups have their own type of retirement plan: a 403(b) plan. Visit Reviewing retirement benefits to learn more about these items.
- IRAs are retirement plans that you set up yourself. They come in two types: traditional IRAs and Roth IRAs. You can learn more about IRAs by visiting Making your own plan with IRAs.
- Which is best? Some employers offer a match in their retirement plans. If you put money in your account, they will match your contribution—up to a certain amount. In general, if your employer offers a match, you should take advantage of it.
Focus first on contributing enough to receive your maximum employer’s match. After that, if you have more money to invest, you may wish to consider other options.
- Investment flexiblity. Some employer plans limit the way that your money can be invested. If you like the investment options available to you, you may wish to stick with your employer's plan. If you'd prefer to have other investment options, an IRA may be a more flexible route.
- Tax deductions. If you need the tax break now, traditional IRAs can help you save money today. If the tax deduction isn't critical now, a Roth IRA can help you amass more savings for your future.