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Retirement

Retirement accounts—which plan is best for you?

Employer plans, IRAs, and taxable accounts can all be used for retirement saving. Here are some options that may help you reach your retirement savings goals.
3 minute read

Common employer retirement plans

1. 401(k) plan. A 401(k) plan allows employees to contribute a portion of their wages toward retirement savings through payroll deductions. Many (though not all) employers choose to match a portion of their employees' contributions. Participants contribute to a 401(k) plan with pre-tax money and pay taxes upon withdrawal in retirement; however, some employer plans may allow post-tax contributions (Roth contributions) and withdraw the money tax-free in retirement.

2. 403(b) plan. A 403(b) plan is similar to a 401(k), but is specifically for employees of public schools, certain nonprofits, and other tax-exempt organizations. It also allows employees to contribute part of their salary to the plan, with similar tax advantages such as employer match, higher contribution limits, and tax savings.

3. Defined benefit plan (pension plan). A pension plan provides a fixed, preestablished benefit for employees at retirement, based on factors such as their previous salaries and how long they have worked for the company. With a pension plan, the employer is responsible for managing the investments and assuming the investment risk, ensuring there are enough funds to provide the promised benefits.

Each of these plans has specific rules regarding eligibility, contributions, and withdrawals, with the goal of helping plan participants save for retirement.

Open an IRA

If you're already saving in an employer plan up to the match—or if your employer doesn't offer a retirement plan—your best course of action may be to open an IRA, which is an account with tax benefits specifically created for retirement.

Opening an IRA for your additional savings will give you a chance to explore your investment options. You can hold many types of investments in an IRA, including any mutual fund, ETF (exchange-traded fund), stock, or bond.

There are 2 types of IRAs, a traditional IRA and a Roth IRA. Those seeking to benefit from tax-free earnings1 may choose a Roth IRA.

Compare traditional and Roth IRAs to learn more about your options.

The 2024 annual contribution limit for IRAs is $7,000 for those under age 50, though additional limitations may apply depending on your income. (If you're age 50 or over, you can contribute up to $8,000.)

No matter which kind of IRA you choose, the tax breaks you get can mean more money for your retirement.

Find out more about IRAs and how they differ from 401(k) plans.

Advantages and disadvantages of IRAs

Advantages of IRAs:

  • Tax advantages. IRAs offer significant tax advantages, including tax-deferred growth on traditional IRAs and tax-free withdrawals in retirement for Roth IRAs.
  • Investment options. IRAs typically offer a wide range of investment options, including stocks, bonds, mutual funds, and ETFs, allowing for personalized investment strategies.
  • Compound interest. The potential for compound interest over time can significantly increase retirement savings.
  • Tax deduction. Contributions to traditional IRAs may be tax-deductible depending on your income, filing status, and other factors.

Disadvantages of IRAs:

  • Contribution limits. IRAs have annual contribution limits, which may restrict the amount of money you can save each year compared with other investment accounts.
  • Penalties for early withdrawal. Withdrawing funds from an IRA before age 59½ can incur a 10% penalty in addition to income taxes, though there are exceptions.
  • Required minimum distributions (RMDs). Traditional IRAs require withdrawals to begin at age 73 (beginning December 31, 2024), regardless of whether the money is needed.
  • Income limits for Roth contributions. Roth IRAs have income limits, which can prevent high earners from contributing directly to a Roth IRA.

Make the most of your contributions

If your employer offers a retirement plan—like a 401(k) or 403(b)—and will match your contributions up to a certain percentage, make sure you contribute enough to get the full match and take advantage of the free money they're offering you. Importantly, any contributions made by the employer don't count toward the annual contribution limit set for employees.

Once you've contributed enough to receive the full match from your employer, a savvy next step is to "max out" your IRA to take full advantage of tax benefits and compound growth. For 2024, the annual limit for employee contributions to employer-sponsored plans is $23,000, or $30,500 for those age 50 or older, including catch-up contributions. After maximizing your IRA, it's beneficial to return to contributing to your employer plan until you reach these limits, thereby optimizing your retirement savings and tax advantages.

Continue saving in a taxable account

Maxed out your IRA? For people who want to save even more, the next step may be to save in a general investment account.

These accounts are also called taxable accounts and don't have the tax breaks associated with retirement accounts. As a result, you'll have to pay investment taxes on interest, dividends, and capital gains as your account grows, and you won't receive any tax deductions for your contributions. But because they're not specifically created for retirement, they're also more flexible.

With taxable accounts, there's:

  • No required minimum distributions.
  • No maximum contribution.
  • No minimum age to use the money.
  • No need for an employer sponsor.
  • No penalties for withdrawals before retirement age.

Learn more about taxable brokerage accounts

What's next?

Once you've selected a retirement account, you'll choose investments to hold in it—a step that can be as simple as you want it to be.

Find retirement funds for your account

Where does retirement fit into your priorities?

See how to juggle multiple financial goals


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Talk with one of our investment specialists

Call 1-855-400-5084

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Ready to start?

Open a retirement account


We're here to help

Talk with one of our investment specialists

Call 1-800-231-2364

Monday through Friday
8 a.m. to 8 p.m., Eastern time

Ready to start?

Open a retirement account

Use our handy tools

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Roll over your retirement money

Did you leave retirement savings behind at an old job? Get more flexibility and easier money management.

See if a 401(k) rollover is right for you

Open a Vanguard IRA®

Find out how an IRA can help you start saving—and get tax benefits—today!

Learn more about IRAs

1Withdrawals from a Roth IRA are tax free if you are over age 59½ and have held the account for at least five years; withdrawals taken prior to age 59½ or five years may be subject to ordinary income tax or a 10% federal penalty tax, or both. (A separate five-year period applies for each conversion and begins on the first day of the year in which the conversion contribution is made.) 

All investing is subject to risk, including the possible loss of the money you invest.

When taking withdrawals from an IRA before age 59½, you may have to pay ordinary income tax plus a 10% federal penalty tax.