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Best Retirement Plans of 2024: Choose the Right Account for You
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BEST RETIREMENT PLANS OF 2024: CHOOSE THE RIGHT ACCOUNT FOR YOU

Explore defined contribution plans such as 401(k)s, individual plans, such as
Roth and traditional IRAs, plus plans for self-employed people, such as SEP and
SIMPLE IRAs.
By Dayana Yochim 

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Dayana is a former NerdWallet authority on investing and retirement. She has
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Updated May 6, 2024
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Table of Contents

 * Defined contribution plans
 * Individual retirement accounts (IRAs)
 * Retirement plans for small-business owners and self-employed people


MORE LIKE THISInvestingRetirement Planning

Table of Contents

 * Defined contribution plans
 * Individual retirement accounts (IRAs)
 * Retirement plans for small-business owners and self-employed people


MORE LIKE THISInvestingRetirement Planning

Gone are the days when workers could count on an employee pension plan and
Social Security to cover their costs during those golden years. Today, pensions
are a rarity and Social Security isn’t a slam-dunk for future generations.

So what's the best retirement plan out there now? Well, it depends on how you
want to invest and what's available to you. If you have access to a retirement
plan at work, such as a 401(k), read more about defined contribution plans.

If you’ve maxed out your 401(k) or you don’t have a retirement plan at work,
jump to our section on the pros and cons of IRAs, including traditional and
Roth.

If you're self-employed or own a small business, read about retirement accounts
designed specifically for you, including the SEP IRA, solo 401(k), SIMPLE IRA
and profit-sharing plans.

» MORE: If you want someone to help you, read our guide on how to choose a
financial advisor.

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DEFINED CONTRIBUTION PLANS

There are two main types of employer-sponsored retirement plans:

Defined benefit plans: In years past, some companies guaranteed workers a set
benefit in retirement, a pension plan. The company kicked money into a single
retirement pool, and the pension plan invested it. These plans are rare now.
Still, you might find an employer that makes annual contributions to a
retirement plan based on a similar formula but without any guarantee of the
benefit provided in retirement.

Defined contribution plans: These are now the most common type of workplace
retirement plan, and that's where we will focus more of our attention. Employers
set up these plans, such as 401(k)s and 403(b)s, to enable employees to
contribute to an individual account within the company plan — typically via
payroll deduction. If you come across the words “company match” in your employee
benefits paperwork, that means you’ve got access to some free money: the company
contributes to your account based on your personal contribution level (for
example, a dollar-for-dollar or 50-cents-on-the-dollar match, up to, say, 6%).

» Crunch the numbers with our 401(k) calculator


MAIN ADVANTAGES OF DEFINED CONTRIBUTION PLANS:

 * They're relatively easy to set up and maintain. Most employers offer an
   automatic payroll deduction option for deposits into the plan, and the
   retirement plan administrator (a separate financial institution) handles
   statements, disclosures and updates.

 * Your employer might match a portion of your contribution.

 * You can contribute more per year to a 401(k) than you can to an individual
   retirement account (IRA).

 * Employee contributions to traditional 401(k) plans reduce your taxable income
   for the year. You'll owe taxes on the withdrawals you make in retirement.
   Roth 401(k) contributions don't offer any immediate tax break because
   contributions are made with after-tax money. However, qualified withdrawals
   from Roth 401(k)s are tax-free in retirement.

 * The Roth 401(k) has no income restrictions, unlike the Roth IRA.

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MAIN DISADVANTAGES OF DEFINED CONTRIBUTION PLANS:

 * Investment choices within employer-sponsored retirement plans are often
   limited to certain funds, leaving you with fewer options than in an IRA.

 * Management and administrative fees can be high and erode your investment
   returns over time.

 * New employees might have a waiting period before they can contribute to a
   plan.

 * Employer match contributions might be subject to a vesting schedule, in which
   money becomes the property of employees only after they have worked for the
   company for a certain amount of time.

» Learn more: How to decide if it’s better to invest in an IRA or a 401(k).


5 TYPES OF EMPLOYER-SPONSORED RETIREMENT PLANS

Pros

Cons

Good to know

401(k)/Roth 401(k)

 * Employer might match contributions.

 * If employer offers traditional and Roth 401(k)s, participants can fund both.

 * The total annual limit is $23,000 ($30,500 for age 50 and older) in 2024.

 * Investment choices might be limited.

 * Plan fees can be high.

Roth 401(k)s no longer require you take minimum distributions.

403(b) (aka TSA or Tax-Sheltered Annuity)

Optional 15-year rule allows catch-up contributions up to a $15,000 lifetime
max.

Investments sometimes limited to high-fee mutual funds and/or variable annuity
multiyear contracts.

Employees with 15 years of service might qualify for $3,000 in catch-up
contributions each year for 5 years.

457(b)

 * If employer offers a 403(b) or 401(k) in addition to the 457, workers might
   be eligible to contribute to both.

 * No early withdrawal penalty if you leave job.

 * Contractors are eligible.

 * Employer match is rare.

 * Employer match amoumt is included in the annual contribution limit.

Participants might qualify for the saver’s credit.

Defined Benefit Plan

 * Predictable retirement benefit.

 * Employers get higher deduction for offering this plan.

Complex and costly to establish.

Participants have less control over contribution amounts and investments.

TSP (Thrift Savings Plan)

 * Eligible employees receive matching contributions on the first 5% of pay
   contributed.

 * Offers low-cost investment options.

 * Three-year vesting schedule for most employees.

 * Limited selection of investment options.

Roth and traditional versions available.

Sources: IRS.gov, TSP.gov, 403bwise.com.


INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)

The IRA is one of the most common retirement plans. An individual can set up an
IRA at a financial institution, such as a bank or brokerage firm, to hold
investments — stocks, mutual funds, bonds and cash — earmarked for retirement.

The IRS limits how much an individual can contribute to an IRA each year, and
depending on the type of IRA, decides how the funds are taxed — or protected
from taxation — when a participant makes deposits and withdrawals.


MAIN ADVANTAGES OF IRAS

 * They put you in the driver’s seat. You choose the bank or brokerage and make
   all the investment decisions, or hire someone to make them for you.

 * Depending on the type of IRA you choose — Roth or traditional — and based on
   your eligibility, you can decide how and when you get a tax break.

 * IRAs usually provide a much wider range of investment choices than workplace
   retirement plans do.

 * If you qualify for both a Roth and a traditional IRA in the same year, you
   can contribute to both. Your total contributions must remain below the
   combined IRA contribution limit. But the "twofer" does get you some tax
   diversification in your retirement portfolio.


MAIN DISADVANTAGES OF IRAS

 * Another consideration in the IRA vs. 401(k) debate, is that IRAs have lower
   annual contribution limits than most workplace retirement accounts:
   
    * In 2024, the maximum amount you can put in an IRA is $7,000. If you're 50
      or older, you can contribute an additional $1,000 as a catch-up
      contribution. You can contribute to an IRA for 2024 through the April tax
      filing deadline in 2025.
   
    * The annual maximum for 401(k)s, on the other hand, is $23,000 (or $30,500
      if 50-plus) in 2024.

 * Roth IRA contribution limits are based on your modified adjusted gross
   income. The amount you're allowed to contribute begins to decrease once your
   income hits $146,000 (single taxpayers) or $230,000 (married filing jointly
   taxpayers) in 2024.

 * With a traditional IRA, anyone can contribute, no matter their income. But
   your ability to deduct your contributions may be limited if you (or your
   spouse) have a retirement plan at work.

 * Choosing between a Roth and a traditional IRA requires you to guess what your
   tax situation will be when you start drawing from the account. For some, the
   immediate tax break of the traditional IRA might make that account more
   appealing; for others, the prospect of tax-free income in retirement makes
   the Roth the clear winner. Get the details in our Roth vs. traditional IRA
   comparison.

» MORE: See the traditional IRA income and contribution limits


RETIREMENT PLANS FOR SMALL-BUSINESS OWNERS AND SELF-EMPLOYED PEOPLE

According to a March 2023 Bureau of Labor Statistics report, 73% of workers have
access to a workplace retirement plan. At companies with fewer than 100 workers,
about 59% of employees have access to a retirement savings plan
[1]
Bureau of Labor Statistics. Table 1. Retirement benefits: Access, participation,
and take-up rates. Accessed May 6, 2024.
View all sources
.

If you work at or run a small company or are self-employed, you might have a
different set of retirement plans at your disposal. Some are IRA-based, while
others are essentially single-serving-sized 401(k) plans. And then there are
profit-sharing plans, which are a type of defined contribution plan.


MAIN ADVANTAGES OF PLANS FOR SELF-EMPLOYED PEOPLE:

 * Plans for contractors, self-employed people and small-business owners have
   higher contribution limits than most employer plans and IRAs.

 * These plans often offer more investment choices than employer-sponsored
   plans, such as 401(k)s.

 * Many of these plans are easy to set up and therefore not much of a burden on
   the small-business owner.

 * You might be able to set up your account at a financial institution you
   already use.

 * If you're self-employed, you can give yourself a generous profit-sharing
   contribution, plus make your elective deferral — with catch-up — as the
   employee.

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MAIN DISADVANTAGES OF PLANS FOR SELF-EMPLOYED PEOPLE:

 * Employer contributions might be completely discretionary, putting more of the
   savings burden on employees/plan participants.

 * Setup and administrative duties for more complicated plans fall on the
   employer — which might be you.

 * Some plans have narrower parameters for allowable early withdrawals than
   traditional IRAs and employer-sponsored retirement plans.

 * Loans from some plans must meet certain requirements and require the
   participant to apply.

 * For self-employed people, the profit-sharing cap boils down to about 20% of
   net profits because of Federal Insurance Contribution Act taxes due on net
   profits.

Article sources
NerdWallet writers are subject matter authorities who use primary, trustworthy
sources to inform their work, including peer-reviewed studies, government
websites, academic research and interviews with industry experts. All content is
fact-checked for accuracy, timeliness and relevance. You can learn more about
NerdWallet's high standards for journalism by reading our editorial guidelines.
 * 1.Bureau of Labor Statistics. Table 1. Retirement benefits: Access,
   participation, and take-up rates. Accessed May 6, 2024.

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