Types of Retirement Accounts

Retirement accounts come in two families. Employer plans are offered through a job: a 401(k) at most private companies, a 403(b) at public schools and nonprofits, a 457(b) for state and local government employees, and the TSP for federal workers. They differ mostly in who sponsors them — the core tax treatment is very similar. IRAs (Individual Retirement Arrangements) are the other family: you open one yourself at a brokerage, no employer involved.

Employer plans have much higher contribution limits and are the only place you can get an employer match. The tradeoff is a fixed investment menu chosen by your employer. In 2026 you can contribute up to $24,500 of your own pay to a 401(k)-type plan (with an extra $8,000 allowed at 50+).

An IRA has a far lower limit — $7,500 in 2026, plus $1,100 more at 50+ — and requires earned income to contribute. In exchange you get nearly unlimited investment choice, and the account is yours regardless of where you work. Many people use both: contribute enough to the employer plan to capture the full match, then use an IRA. These limits are adjusted most years, so check the current figures on irs.gov rather than assuming.

Most of these accounts come in both Roth and Traditional versions — same container, different tax timing (see 'Roth versus Traditional'). Your employer plan may offer both, and you can split contributions between them.

The catch across all of them is access. 59½ is the age at which you can generally withdraw without penalty. Take money out before that and you typically owe a 10% early withdrawal penalty on top of any income tax due. There are narrow exceptions — disability, a first home from an IRA, certain education costs — but they're exceptions, not a plan. One useful quirk: in a Roth IRA, the contributions you put in can be withdrawn at any time tax- and penalty-free; only the earnings are locked up.