For many of you, retirement may still seem like a faraway land, and the language spoken there—401(k), 457(b), IRA—completely foreign. But those terms (and a few more) are the names of different types of investment accounts. This guide to the basics will help you make sense of the lingo, understand how the different accounts work, and identify which might be best for your needs ... right here, right now.
Here's what you need to know about some of the more common retirement accounts and plans.
401(k)
You've probably heard of this before and for good reason: About 70 million Americans (roughly 42% of the working population) have a 401(k),1 making it one of the most popular ways to save for retirement.
401(k)s let you set aside part of each paycheck into an account, where (depending on your plan options) you can invest in things like mutual funds and ETFs. In addition, many employers match your contributions (you put in $100, they put in $100), up to a certain percentage of your total salary. Lots of workplaces offer 401(k)s in their employment benefits packages.
One of the most appealing aspects of a 401(k) is that in most cases your contributions go in "pre-tax"2: Whatever amount you put into it, excluding employer contributions, is deducted from your income before you're taxed on your income for the year. For 2025, individuals can contribute up to $23,500. Those aged 60 to 63 may be able to contribute up to $11,250 more as a catch-up contribution if their employer's plan allows it, while those aged 50 to 59 or 64 and older are eligible to contribute up to $7,500 more as a catch-up contribution. You only pay tax when you withdraw from the 401(k) plan. If you withdraw after age 59½ there's no penalty, but any withdrawals that occur before that may incur a 10% penalty of what you withdraw on top of regular income taxes. The earlier you start contributing to a 401(k), the more time you give your money to benefit from potential compound returns.
403(b) and 457(b)
Nonprofit organizations and government agencies tend to offer 403(b) plans. They're a lot like 401(k)s—in most cases, you devote a certain amount pre-tax with every paycheck.
Some nonprofits and government agencies also offer 457(b) plans. As with 401(k)s and 403(b)s, you contribute pre-tax earnings in most cases. But unlike those other 2 plans—which can have you on the hook for high penalties as well as taxes if you withdraw before age 59½—the 457(b) lets you withdraw your money penalty-free after you leave your job with the plan-offering employer as long as you haven't rolled-in other 401(k) or 403(b) assets.
Pension
Pensions are not technically an account, but they are another way people save for retirement. Although far less common than during their peak in the 1970s, pension plans are still offered by some employers and unions. Usually, your employer contributes money on your behalf over time into an investment account managed by your employer or union. So, unlike a 401(k) or 403(b), a pension is not your own account or fund. Your employer then invests your (and your co-workers') money with the agreement that when you retire, you will receive a predetermined amount in either a lump-sum payout or monthly installments, often for the rest of your life. That's why pensions are sometimes called "defined benefit plans."
While you have less flexibility in choosing what to invest in and when to withdraw, a pension can help reduce longevity risk, or the risk of outliving your savings, because, in most cases, the employer must pay you the predefined amount in retirement until the day you or your beneficiary dies. A pension can provide a steady income stream throughout your retirement, unlike other retirement accounts which have no guarantee. And, often, pensions are protected by federal insurance (within certain limitations) by the Pension Benefit Guaranty Corporation (PBGC).
For more on pensions, check out the PBGC's resourcesOpens in a new window.
Traditional IRA
An individual retirement account (IRA) lets you contribute directly, without a workplace sponsor (as with 401(k)s and 403(b)s). In a traditional IRA, you can make contributions up to the annual limit ($7,000 for those under 50 and $8,000 for those over 50). But if you're within certain income limits (for 2024, $87,000 or less if single and $143,000 or less if married; for 2025, $89,000 or less if single and $146,000 or less if married) you may be able to deduct all or a portion of that contribution from your current taxable income to reduce your federal income tax when you file, even if you're maxing out contributions to a 401(k) or 403(b). Your income does have to be greater than or equal to your contributions, though.3 If you are not covered by a workplace sponsored plan, you may be able to deduct more from your current taxable income.
Once in the account, those dollars can potentially grow until you withdraw them in retirement, at which point you'll need to pay taxes on the income. Similar to 401(k)s, penalties may apply if withdrawing before age 59½.
Roth IRA
With a Roth IRA, you contribute after-tax dollars and can't deduct contributions from your taxes. But any investment gains the account makes are yours in retirement without having to pay capital gains and income taxes, if you meet certain qualifications on Roth distributions.4 However, similar to traditional IRAs, withdrawing money prior to age 59½ or without satisfying the IRS's 5-year aging rule may result in taxes and/or penalties.
As with traditional IRAs, you can contribute to a Roth IRA even when you have a workplace 401(k) or 403(b) plan, or as long as you have earned income from a job or self-employment. The IRS does set an income limit to be eligible to contribute to a Roth IRA, though.
Learn more about Roth IRAs.
Rollover IRA
When you leave a job, you can typically transfer your 401(k) or 403(b) to your new workplace. Or you can roll it into an IRA. You may be able to leave this money in your existing plan, but you should check with you employer to see if that is an option under your plan.
A rollover IRA offers access to a wider range of investment options (and lets you personalize your choices) than some workplace plans, while still preserving the tax savings you earned when you initially contributed to your 401(k). Some people may choose to roll over their workplace plans to an IRA if they switch from a salaried job to freelance work. And a rollover IRA can be a convenient way to consolidate many workplace plans from different jobs into a single account. Be sure to consider all your available options and the applicable fees and features of each before moving your retirement assets.
Learn more about rollover IRAs.
Roth 401(k)
A Roth 401(k) mixes the advantages of a 401(k), in that contributions are made regularly and directly from your paycheck, and a Roth IRA, in that contributions are made after taxes are taken out. In a Roth 401(k), your money can then potentially grow tax-free,5 and you don't have to pay any taxes when you withdraw in retirement after age 59½, or after age 55 if you retire from the employer where the account is held. Similar to a Roth IRA, you must satisfy the 5-year rule before withdrawing any funds to avoid paying potential penalties or taxes. Unlike a Roth IRA, there are no income limits. Many people open and contribute to a Roth 401(k) early in their careers when they have less income and consequently have a lower income tax rate.
See if a Roth 401(k) may make sense for you.
HSA
While health care costs may seem high enough today, you can expect them to be even higher when you reach retirement.
On average, according to the 2024 Fidelity Retiree Health Care Cost Estimate, a 65-year-old individual may need $165,000 in after-tax savings to cover health care expenses.
A health savings account (HSA) can be a helpful tax-advantaged way to save for future costs, and in the short term, stash away funds for medical emergencies.
In order to open an HSA, you need to be covered by an HSA-eligible health plan (aka a high-deductible health plan). With an HSA, you may be able to contribute pre-tax dollars from your paycheck automatically, and your employer might even match those contributions. You can use money in your HSA to pay for qualified medical expenses, and you can invest your contributions (in stocks, bonds, ETFs, mutual funds, or other options) where they can grow tax-free. The money you take out now won't get taxed either if it goes toward qualified medical expenses, such as doctor visits and prescriptions.6 If you need to use the funds for other purposes, you may be subject to a 20% penalty and income taxes, but that penalty goes away after age 65 when only income taxes would apply.
