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Types of Retirement Accounts

Different types of accounts come with different advantages and rules. Understand your options so you can make choices that work to your advantage.

RV vacation in the mountainsHere’s some good news when it comes to investing for retirement: you may have access to several types of accounts throughout your career. The key to success is choosing the right account(s) for your situation.

As a Service member, you have access to the Thrift Savings Plan (TSP) to save for retirement. Military spouses may have options through their civilian employer such as a 401(k) or 403(b) plan. All of these are examples of employer-sponsored retirement plans, which often provide benefits like matching your retirement contributions with employer dollars.

In addition to employer-sponsored plans, Individual Retirement Accounts (IRAs) are another option to save for retirement on your own. Here’s more intel on each option.

Employer-Sponsored Plans

Employer-sponsored plans such as a 401(k) or the Thrift Savings Plan (TSP) are set up by your employer for you to make retirement contributions from your paycheck. These plans provide generous contribution limits and may feature employer-matching contributions on the money you invest. It’s normally a smart idea to take advantage of your employer’s retirement benefits, so take time to learn about your investment options, contribution limits, contribution matching, and vesting schedule.

  • Thrift Savings Plan (TSP) – Offered by the federal government
  • 401(k) – Offered in the private sector
  • 403(b) – Offered by public schools and certain charities
  • 457(b) – Offered by state and local governments and some nonprofits
  • Pension – Offered sparingly by a range of employers

Individual Retirement Accounts (IRAs)

Individual Retirement Accounts (IRAs) are accounts that you can open with a financial institution to invest for retirement. The main types of IRAs are Traditional IRAs, Roth IRAs, and Spousal IRAs. These accounts allow for a wide range of investment choices and generous contribution limits to help you save on your own for retirement.

  • Traditional IRA – Contribute pretax (in most cases), pay taxes upon withdrawal
  • Roth IRA – Contribute after-tax, withdraw tax-free
  • Spousal IRA – Contribute in the name of a non-working spouse

Self-Employed Plans

Self-employed retirement accounts are available to business owners, independent contractors, and people who work for themselves. These plans provide tax advantages for contributions, but each plan has different rules and requirements. The most common retirement accounts for those who are self-employed include SEP-IRAs, Solo 401(k)s, and SIMPLE IRAs.

  • Simplified-Employee Pension (SEP) – Allows employers to contribute pretax retirement dollars for employees
  • Solo 401(k) – Allows a business owner with no employees to save for retirement
  • SIMPLE IRA – Allows employees and employers to contribute pretax retirement dollars for employees.