Dec 29, 2024 | 6 min read
Learn about common types of retirement plans and key features, eligibility requirements, and contribution limits for retirement plans like 401(k)s, IRAs, and more.
Planning for the future pays off — and there's no better time to start than now.
The daily grind might consume your focus, so take just one small step toward retirement planning and set in motion a powerful chain of financial growth. Understanding the types of retirement plans available is an essential first step in creating a solid foundation for long-term success.
A recent report from the Federal Reserve revealed that nearly a quarter (25%) of non-retired adults have no retirement savings at all, and fewer than 40% of working adults believe their retirement savings are on track.
"Although almost three-fourths of non-retired adults had at least some retirement savings, about 28 percent did not have any."
Think of retirement planning as giving yourself the ultimate gift: the freedom to choose how you spend your time. Every dollar you save today is a vote for that freedom. The best part? You don't need to have it all figured out. Just start somewhere.
1
Employer-Sponsored Plans
401(k) Plans
One of the most well-known retirement plans, a 401(k) is offered by many employers and allows you to contribute pre-tax income. Some employers match contributions, which is essentially free money for your future.
Key Features:
Contribution limit: $23,500 in 2025 ($31,000 if age 50+).
Tax-deferred growth: You don’t pay taxes until you withdraw funds in retirement.
Roth 401(k) option: Pay taxes now for tax-free withdrawals later.
403(b) Plans
If you work for a nonprofit, school, or government organization, you might have access to a 403(b) plan. It’s similar to a 401(k), with tax-deferred growth and contribution limits.
Key Features:
Contribution limit: $23,500 in 2025 ($31,000 if age 50+).
Investment options: Often limited to annuities and mutual funds.
Tax-deferred growth: You don’t pay taxes until you withdraw funds in retirement.
Roth 401(k) option: Pay taxes now for tax-free withdrawals later.
SIMPLE IRA
For employees of smaller businesses, a SIMPLE IRA (Savings Incentive Match Plan for Employees) offers a straightforward way to save for retirement. Employers are required to match contributions up to a certain percentage.
Key Features:
Contribution limit: $16,000 in 2025 ($19,500 if age 50+).
Employer contributions: Employers must either match employee contributions up to 3% of salary or contribute 2% of each eligible employee's salary..
Tax-deferred growth: You don’t pay taxes until you withdraw funds in retirement.
Simple setup: Designed to be easier for small businesses to administer compared to other plans.
2
Individual Retirement Accounts (IRAs)
Traditional IRA
Anyone with earned income can contribute to a Traditional IRA. Contributions may be tax-deductible depending on your income and whether you’re covered by an employer plan.
Key Features:
Contribution limit: $7,000 in 2025 ($8,000 if age 50+).
Tax-deferred growth: Pay taxes on withdrawals during retirement.
Flexibility: Wide range of investment options including stocks, bonds, and mutual funds.
Roth IRA
A Roth IRA allows you to contribute after-tax income, with tax-free withdrawals in retirement.
Key Features:
Income limits: Contributions phase out for higher earners (e.g., $150,000 for single filers in 2025).
Flexibility: Contributions (not earnings) can be withdrawn without penalties at any time.
Tax-free growth: Both contributions and investment gains are tax-free when withdrawn under qualified conditions.
3
Self-Employed Plans
SEP IRA
If you’re self-employed or own a small business, a SEP IRA (Simplified Employee Pension) lets you contribute a percentage of your income with high contribution limits.
Key Features:
Contribution limit: Up to 25% of compensation or $70,000 in 2025.
Simple setup: Less paperwork compared to other business plans.
Flexibility: Contributions are only required during profitable years, offering adaptability.
Employer-funded: Only the employer contributes, and employees do not make contributions.
Solo 401(k)
Designed for self-employed individuals without employees, Solo 401(k) plans offer the ability to make both employee and employer contributions.
Key Features:
High contribution limits: Up to $70,000 (plus catch-up contributions if age 50+).
Roth option: Some providers offer a Roth Solo 401(k).
Loan option: Many Solo 401(k) plans allow you to borrow against your balance.
Flexibility: Contributions can be adjusted annually based on your business performance.
4
Government-Sponsored Plans
Thrift Savings Plan (TSP)
Federal employees and members of the military can access the TSP, which offers low-cost investment options and works similarly to a 401(k).
Key Features:
Contribution limit: $23,500 in 2025 ($31,000 if age 50+).
Low fees: Helps maximize your retirement savings.
Investment options: Includes lifecycle funds and other low-cost index funds.
Matching contributions: Federal agencies may match a portion of employee contributions, enhancing savings growth.
5
Plans for State & Local Employees
457(b) Plans
A 457(b) plan is a retirement savings plan available to state and local government employees, as well as some nonprofit employees. It functions similarly to a 401(k) but has unique features tailored to public sector and nonprofit workers.
Key Features:
Contribution limit: $23,500 in 2025 ($31,000 if age 50+).
Double deferral: Employees with access to both a 457(b) and a 403(b) or 401(k) can contribute the maximum to each plan.
Early withdrawals: No early withdrawal penalty if you separate from service, regardless of age.
Investment options: Typically includes a range of mutual funds and annuities.
6
Health Savings Plans
An HSA is a savings account available to individuals with high-deductible health plans (HDHPs). It offers triple tax advantages: contributions are tax-deductible, growth is tax-free, and withdrawals for qualified medical expenses are also tax-free.
Key Features:
Contribution limit: $4,300 for individuals and $8,550 for families in 2025 (plus $1,000 catch-up if age 55+).
Flexibility: Funds can be used for medical expenses or saved for retirement after age 65.
Portability: The account stays with you even if you change jobs.
7
Taxable Brokerage Accounts
While not a retirement-specific account, a taxable brokerage account can be a powerful tool for saving for the future. It allows you to invest in stocks, bonds, ETFs, and mutual funds without the contribution limits or withdrawal restrictions of retirement accounts.
Key Features:
No contribution limits: Invest as much as you’d like.
Flexibility: Withdraw funds at any time without penalties.
Tax implications: Pay taxes on dividends, interest, and capital gains.
Summary of 2025 Contribution Limits
How to Choose the Right Retirement Plan
Deciding which retirement plan to prioritize depends on your specific situation. Here are some guiding questions:
Does your employer offer a plan? If so, take full advantage of any matching contributions.
Are you self-employed? Explore options like a SEP IRA or Solo 401(k).
Do you want tax benefits now or later? Compare the benefits of Traditional and Roth accounts.
Do you have additional savings goals? HSAs and taxable brokerage accounts can complement your retirement strategy.
Take Action Today
The earlier you start saving, the more time your money has to grow. Even small contributions can add up over time. If you’re not sure where to begin, consider speaking with a financial planner who can help you develop a personalized retirement strategy.
Remember, every great journey begins with a single step. The path to financial freedom may seem long, but each decision you make today brings you closer to your retirement goals. By following this roadmap and staying committed to your plan, you're not just preparing for retirement – you're building a foundation for lasting financial independence.
Ready to take the first step on your journey to financial freedom? Creating a solid retirement strategy is crucial for building the future you envision.
At Israilov Financial, we specialize in turning retirement dreams into reality. Our experienced team will help you navigate every aspect of retirement planning, from investment strategies to tax optimization. Schedule your free discovery meeting today and let's map out your path to financial independence.
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