Retirement accounts provide ways to save and invest for the future, each with distinct features and tax advantages. Understanding the differences between these accounts can help in making informed financial decisions.
1. 401(k) Plans
A 401(k) is an employer-sponsored contribution plan that allows employees to save for retirement. The earlier you start contributing to a 401(k), the more time you give your money to benefit from potential compound returns.
- Tax Benefits: Contributions are made pre-tax, lowering taxable income. Earnings grow tax-deferred, and withdrawals are taxed as ordinary income.
- Contribution Limits: For 2025, the contribution limit is $23,500, with a $7,500 catch-up contribution for those 50 and older. View income tax brackets here.
2. Pension Plans
A pension, or defined benefit plan, may qualify you for an income stream in retirement, based on salary history and years of service.
- Employer-Funded: Employers typically fund these plans, with some requiring employee contributions.
- Predictable Payouts: Benefits are predetermined and often paid monthly during retirement.
To learn more about Pension Payment Options, click here.
3. Roth IRA
A Roth IRA is an individual retirement account funded with after-tax dollars, offering tax-free growth and withdrawals in retirement.
- No RMDs: Unlike traditional IRAs, Roth IRAs do not require withdrawals starting at age 73.
- Contribution Limits: The 2025 limit is $7,000, or $8,000 for those 50 and older. Income restrictions apply.
If you are a high-income earner, read more about different Roth IRA strategies here.
4. Rollover IRA
A Rollover IRA is an account used to transfer funds from an employer-sponsored plan, such as a 401(k) or 403(b), into an IRA. If you are switching jobs or retiring, it may make sense to consider a rollover of funds from your employer-based retirement plan.
Use this IRA-rollover evaluator to make an informed decision about reaching your retirement goals.
5. 403(b) Plans
A 403(b) plan is available to public school employees, non-profit workers, and certain tax-exempt organizations.
- Contribution Limits: Matches the 401(k) limits—$23,500 for 2025, with an additional $7,500 for those 50 and older.
Our team with offices in Dubuque, IA, Lake Geneva, WI, Rockford, IL, and Marquette, MI can help you as an ongoing resource. Learn more here about 403(b) plans here.
6. Traditional IRA
A Traditional IRA is a tax-advantaged personal savings plan where contributions may be tax deductible. This option lets you contribute directly, without a workplace sponsor.
- Tax-Deferred Growth: Earnings are taxed upon withdrawal in retirement.
- Contribution Limits: $7,000 for 2025, with an $8,000 limit for those 50 and older.
7. Health Savings Account (HSA)
HSAs are tax-advantaged accounts designed for individuals with high-deductible health plans. While primarily used for medical expenses, they offer long-term savings benefits.
- Triple-Tax Advantage: Contributions are tax-deductible, growth is tax-free, and qualified withdrawals for medical expenses are tax-free.
- Retirement Use: After age 65, non-medical withdrawals are taxed as ordinary income.
- Contribution Limits: $4,150 for individuals and $8,300 for families in 2025, with an additional $1,000 catch-up for those 55 and older.
View more HSA Insights here.
Planning for Retirement
Each of these accounts offers different tax advantages and savings potential. Choosing the right combination depends on income, employment, tax strategy, and long-term financial goals. Saving for retirement requires a plan. Our team at StackStoneWealth is here to help. Contact us to learn more.
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