Selecting the right retirement savings plan is just as crucial as saving for retirement itself.

Your choice of plan determines your annual contribution limits, how it's taxed, withdrawal rules, investment options, and the fees you’ll pay!

401(k)

A 401(k) is the most common employer-sponsored retirement plan. Your employer offers a selection of investment options, and you contribute a portion of your salary to the account. If you change jobs, you can either take your 401(k) with you or leave it as is.

For 2024, you can contribute up to $23,000 to your 401(k), with an additional $7,500 if you're 50 or older. In 2025, the contribution limit increases to $23,500 for those under 50. Adults aged 50 to 59 can contribute up to $31,000, and those aged 60 to 63 can contribute up to $34,750.

Some employers also offer matching contributions. However, you cannot withdraw funds from your 401(k) before age 59 ½ without penalties.

Tax Benefits:

Most 401(k)s are tax-deferred, meaning your contributions reduce your taxable income now, and you pay taxes when you withdraw funds in retirement. If you expect to be in a lower tax bracket in retirement, this could be an advantage.

401(k) Loans:

Some plans allow loans, where you can borrow against your retirement savings and repay over time. However, if the loan isn’t paid back in full, the government taxes the remaining balance as a distribution.

Other Employer-Sponsored Retirement Plans:

403(b) Plans

Typically for teachers and nonprofit employees, these plans function similarly to 401(k)s but may have fewer investment options.

457 Plans

This plan is for government employees and offers unique tax benefits.

Profit Sharing Plans

This allows employers to share profits with employees by contributing to their retirement accounts.

Roth 401(k):

If you have access to this option, it allows you to contribute after-tax dollars and make tax-free withdrawals in retirement.

IRA (Individual Retirement Account)

An IRA is a retirement account that anyone with earned income can open, offering more investment options than employer-sponsored plans.

Tax Benefits:

Traditional IRAs are tax-deferred, meaning contributions lower your taxable income now, and you pay taxes on distributions in retirement. Roth IRAs are funded with after-tax money, but withdrawals in retirement are tax-free.