Your Guide to Popular Retirement Accounts

Whether you’re just starting out in your career or you’ve already been saving, it’s good to know about the popular retirement account options available to you. There are opportunities whether you’re an employee of a company or self-employed. If you work for a school, public, or government employer, you may have other retirement accounts available to you.

You have saving and investment options

While there are several ways to save for retirement, 401(k)s and IRAs are the two most popular.

A 401(k) is a defined contribution plan offered through your employer, while an IRA is a retirement account that you set up and contribute to independently.

You can always save money in a regular savings account, too – but that doesn’t have tax advantages, so you won’t save up as much.

401(k) plans

A 401(k) is a way to save for retirement that’s set up by your employer. So to have a 401(k) account, you typically need to work for an employer that offers one. However, self-employed people can set up a Solo 401(k), also called a Solo-k.

Most 401(k)s are managed by companies themselves or investment groups, and most 401(k)s invest in the stock market, at least with a portion of the assets.

With a traditional 401(k), you typically have your employer set aside a percentage of your gross wages – that is, your pay before taxes and other deductions – such as 8%. (With another type of 401(k) called a Roth 401(k), your contributions are made after you pay taxes.)

While there are no income limits for 401(k)s, there are contribution limits – meaning that you can only contribute up to a maximum dollar amount each year. Check your benefits department or tax advisor for details on the maximum.

In many cases (but not all) your employer will match some of your contributions to a 401(k) account. For example, a company may match you dollar-for-dollar up to a certain percent of your wages – such as up to 3% in this scenario:

• If you contributed 3% of $100 in wages to your 401(k), you would get a $6 deposit to your 401(k) – $3 from your wages and $3 from your company.
• If you contributed 4%, you would get a total of $7 – $4 from your wages and $3 from your company.
• If you contributed 2%, you would get a total of $4 – $2 from your wages and $2 from your company. In this instance, you’re losing out on the $1 that your company would contribute because you’re choosing to contribute only 2% (and your company would have matched up to 3% if you had contributed 3% yourself).

Traditional IRAs

A Traditional IRA is a special savings account that you set up for retirement at a financial institution like Patelco or at an investment brokerage. You can choose a variety of investments for your Traditional IRA, including stocks, bonds, ETFs, share certificates and cash savings. Like all IRAs, Traditional IRAs are governed by specific regulations and tax laws, so it’s a bit different from a typical savings account. There are no income limits for Traditional IRAs, meaning that you can contribute to them no matter what your annual gross income is.

After you set up your Traditional IRA, you can make contributions, up to $7,500 per year ($8,600 if you’re age 50 or older). The cutoff date for contributions aligns with tax deadlines, so you have until Tax Day to make contributions for the previous year. When you make a contribution to a traditional IRA, the amount of your contribution may reduce your taxable income for the year, so check with your investment advisor or tax advisor to see if you qualify. For example, if your income is $70,000 and you contribute $7,500 to a Traditional IRA, then your taxable income that year will drop to $62,500 assuming you qualify for the deduction.

You can contribute pre-tax or after-tax dollars, giving you immediate tax benefits if your contributions are tax-deductible. The contributions you make to a Traditional IRA account will then grow tax-deferred, meaning that you are only taxed on your earnings once you withdraw. You’ll pay ordinary income tax on these withdrawals. Note that early withdrawals may be taxed as income and also assessed a 10% IRS penalty.

Portfolio Check-up

Keep an eye on your investments to make sure they’re serving you. As the market changes, or your risk tolerance does, you may want to make adjustments. A financial advisor can offer advice.

Roth IRAs

A Roth IRA is similar to a Traditional IRA, but with very different tax advantages. Only after-tax dollars may be contributed to a Roth IRA account. On the upside, once you withdraw from a Roth IRA during retirement, you can do so tax-free, as long as you’re at least 59½ years old and the funds have been held for at least 5 years. Whatever interest and capital gains you earn in a Roth IRA also grow tax-free. This means that if you earned $100 in interest and $1,000 in capital gains in a single year from money in your Roth IRA, you don’t have to pay taxes that year – nor will you pay additional taxes when you withdraw at retirement.

In 2026, the annual contribution limit for a Roth is the same as for a Traditional IRA – $7,500 per year or $8,600 if you’re age 50 or older. If you contribute to both a Roth IRA and a Traditional IRA, the combined annual limit is $7,500 or $8,600 if age 50 or older. Note that there are also income limits for Roth IRAs, so be sure to talk to your financial advisor to see if you qualify.

The bottom-line difference between Traditional and Roth IRAs

The difference between a Traditional IRA and a Roth IRA essentially comes down to tax deductions – do you want tax advantages now or in the future? If you expect to be in the same or a lower tax bracket in the future, you’re probably better off with a Traditional IRA that gives you tax advantages now. If you expect to be in a higher tax bracket by the time you retire, a Roth IRA may be the best option. If you’re a millennial who is decades away from retirement, it makes sense to contribute to a Roth IRA.

Simplified Employee Pension IRAs

A Simplified Employee Pension IRA, or SEP IRA, is similar to a Traditional IRA in that contributions are tax-deductible and investments grow tax-deferred until retirement. At the point of withdrawal, the money is taxed as regular income. A SEP IRA is best suited for freelancers, independent contractors, and small business owners with few or no employees.

If you’re a small business owner with employees, this plan requires equal contributions as a percentage of compensation. For instance, if you contribute 15% of your compensation to your own plan, you must also contribute 15% to each of your employee’s plans. The contribution limits are much higher, up to $72,000 in 2026 (but your contribution can’t exceed 25% of your total compensation).

Can You Contribute to a 401(k) and an IRA?

Yes, you can. Contributing to both a 401(k) and an IRA can be a smart move, as it can help diversify your retirement investments.

Be aware that, depending on your income, participating in your employer’s 401(k) may limit your ability to deduct your IRA contributions. Check IRS Publication 590-A for details.