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The best retirement plan depends on your situation. If you have taxable income or work for an employer, you'll probably qualify for multiple retirement savings vehicles. And even if you don't work, you'll still have options. You can set up most retirement accounts through employers, but you'll also be able to open and manage your retirement accounts.
The four primary types of individual retirement accounts are:
- Traditional IRAs: a tax-advantaged savings account that lets your funds grow tax-deferred
- Roth IRAs: a tax-advantaged savings account of after-tax funds (money that you've already paid taxes on)
- Spousal IRAs: spouses earning a low (or no) annual income may open a separate IRA in their spouse's name
- Rollover IRAs: funds moved over from a former employer 401(k) plan into an IRA
These are the main IRA options, but you can also set up nondeductible IRAs or self-directed IRAs (more on that below). Investors also have the option to invest in precious metals with gold IRAs and silver IRAs. The best gold IRAs offer liquidity, low spread fees, account flexibility, low account minimums, and human advisor access.
On the employer-sponsored end, the type of employer you work for determines which retirement plan you're eligible to open. Your options are:
- 401(k) plans: traditional or Roth, typically offered by for-profit employers
- 403(b) plans: available to most non-profit employees
- 457(b) plans: reserved for government employees
- Thrift savings plans: reserved for government employees
If you're a self-employed individual, you can't use the traditional 401(k) account. Instead, you'll have to pick a solo 401(k) or SEP IRA (you can supplement either account with an IRA if you choose).
Here are the options for small business retirement accounts:
- SIMPLE IRAs
- Payroll deduction IRAs
- SEP IRAs
Keep reading to learn more about your options.
The Best Retirement Plans for Individuals
One of the most appealing components of independent retirement plans like IRAs is that you can open one as long as you've got taxable (earned) income. And even if you've got an existing employer-sponsored retirement account, you can usually set up a traditional IRA, Roth IRA, and other independent retirement accounts.
Traditional vs. Roth IRAs
Traditional IRAs let you save with pre-tax contributions, while Roth IRAs allow you to contribute after-tax dollars toward your retirement savings. As long as you're eligible (more on that below), experts generally recommend Roth IRAs for early-career workers who expect to be at a higher tax bracket in the future when they're making withdrawals, and traditional IRAs for higher-income workers who could use a tax deduction today.
Traditional IRAs and Roth IRAs both share the same contribution and catch-up contribution limits. For 2023, you can contribute up to $6,500 in annual contributions and up to $1,000 in annual catch-up contributions (if you're age 50 or older). The 2024 contribution limit is $7,000, with up to $1,000 in catch-up contributions.
The biggest difference between the two comes down to tax advantages and income limitations. The Roth IRA limits who can contribute, and how much.
For Roth IRAs, single filers can only contribute the maximum amount in 2023 as long as their modified adjusted gross income (MAGI) is less than $138,000. The MAGI limit in 2024 is $146,000. You can still contribute a lesser amount if you earn a little more, though.
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You can find your MAGI by calculating your gross (before tax) income and subtracting any of your tax deductions from that amount to get your adjusted gross income (AGI). To calculate MAGI, you'll need to add back certain allowable deductions. Allowable deductions that can be added back include passive income or losses, deductions for IRA contributions, rental losses, deductions for student loan interest, and more. Alternatively, you ask your accountant or use an online calculator like the one below:
Married couples need to earn less than $218,000 a year to contribute the full amount (the 2024 income limitation is $230,000 for married couples).
You don't have to worry about income limits for traditional IRAs. However, if you or your spouse are covered by a retirement plan at work, you'll have to consider the income limits for tax-deductible contributions. This is because both traditional IRAs and 401(k)s are funded with pre-tax dollars.
For instance, in 2023 single filers can deduct the maximum contribution amount ($6,500) if they make $73,000 a year or less. Married couples filing jointly can also make full deductions if they make $116,000 a year or less. The amount you can deduct phases out, or decreases if your income exceeds these limits. While you can contribute to a 401(k) and traditional IRA at the same time, your ability to take a tax deduction for these contributions — across both accounts, combined — ends once you hit those income limits.
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Spousal IRAs
There's also an option for married couples where one spouse doesn't earn taxable income. Spousal IRAs allow both spouses to contribute to a separate IRA as long as one spouse is employed and earns taxable income. This account allows the nonworking spouse to fund their own IRA.
Both spouses can contribute $6,500 per year, plus an additional $1,000 each if they're age 50 or older. This means two spouses together could contribute up to $15,000 per year with an IRA. In 2024, each can contribute $7,000 (or $8,000 if they are 50 or older) for up to $16,000 per year.
Rollover IRAs
These accounts let you convert your existing employer-sponsored retirement plan into an IRA, something experts generally recommend doing when you leave a job for a few reasons — primarily because you have more control over the investment options in an IRA than in a 401(k), and also because it's easier to consolidate your accounts for record-keeping.
Many online brokerages and financial institutions offer rollover IRAs, and some will even pay you to transfer your employer-sponsored plan to the IRA.
Self-directed IRAs (SDIRAs)
You can fund a self-directed IRA using traditional or Roth contributions (meaning the $6,500 and $7,500 contribution limits in 2023 are the same across all three — the 2024 limits of $7,000 and $8,000 are the same, too). But the difference between these accounts is mainly one of account custody and investment choices.
Unlike traditional and Roth IRAs, the IRS requires that all SDIRAs have a certified custodian or trustee who manages the account. These third parties handle the setup process and administrative duties of the IRA (e.g., executing transactions and assisting with account maintenance).
SDIRAs also give investors access to a wider range of investment options. With traditional and Roth IRAs, you're limited to mutual funds, ETFs, stocks, and other traditional investments. But SDIRAs allow you to invest in alternative assets like real estate, precious metals, and cryptocurrencies.
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Nondeductible IRAs
Nondeductible IRAs are great for those who don't meet the income limits of Roth IRAs or make too much to qualify for a traditional IRA. For example, if you're filing taxes as an individual, you won't be eligible for a Roth IRA (even discounted contributions) if your MAGI is greater than $153,000 in 2023, or $228,000 for a married couple filing jointly. In 2024, those MAGI limits increase to $161,000 and $240,000, respectively.
If you've got an employer-sponsored retirement plan like a 401(k) and you make more than $83,000 (single filers), you won't qualify for a traditional IRA in 2023. The limit for married couples is $136,000.
Contributions for these accounts aren't tax deductible, meaning you'll be funding your IRA with post-tax dollars like a Roth IRA. The difference is that you'll still have to pay taxes on any earnings or interest from the account once you withdraw at age 59 and a half.
Best Employer-sponsored Retirement Plans
Employer-sponsored retirement plans are savings vehicles your employer provides. There are several types — including 401(k)s, 403(b)s, 457(b)s, and thrift savings plans — and in some instances, your employer will match a percentage of your annual contributions.
401(k)s
For-profit companies generally offer these plans, and most companies give you the choice between two versions: the traditional 401(k) or the Roth 401(k). Traditional 401(k)s grow with pre-tax dollars, but Roth 401(k)s rely on after-tax contributions, just like they do with IRAs. This means that you can either choose to pay taxes on your contributions upfront, or take a potential tax deduction now and pay them later when you withdraw funds from your retirement account.
You can contribute up to $22,500 in 2023 (or $23,000 in 2024), and individuals age 50 and older can contribute additional "catch-up" contributions of $7,500. The maximum limit for employer and employee contributions is $66,000 in 2023 (or $69,000 in 2024). Therefore, the maximum amount those 50 and older can contribute is $73,500 in 2023, or $76,500 in 2024.
Many employers also offer a 401(k) match. This means that your company may match a certain percentage of your annual contributions. These matches vary for each employer and generally range from 3% to 6%. For instance, if you make $50,000 per year, and your company matches 50% of your 401(k) contributions up to 5% of your salary, your employer can contribute up to $1,250 per year.
However, if you're employer matched 100% of your contributions up to 5%, you'd earn the other $1,250 per year, resulting in $2,500 total from your employer.
No matter how big the match, experts generally consider it to be "free money" and recommend taking advantage wherever possible, even if you only contribute enough to get the full match and nothing more.
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403(b)s
Also referred to as tax-sheltered annuities, these retirement plans are typically designated for employees of public schools, 501 (c)(3) tax-exempt organizations, churches, and other non-profit companies. Like 401(k)s, 403(b)s may include employer matches, pre-tax contribution options, and after-tax (Roth) contribution options.
If you're under 50, you can contribute up to $22,500 (the limit in 2024 is $23,000). Those aged 50 and above can contribute an additional $7,500.
In addition to pre-tax and after-tax contributions, you can also contribute to your 403(b) by allowing your employer to withhold money from your paycheck to deposit into the account.
457(b)s
State and local governments and certain tax-exempt organizations can open 457(b)s for their employees. Like 403(b)s, you can also contribute to these accounts by asking your employer to set aside portions of your paychecks for your retirement plan. And in some cases, employers may allow you to make Roth — or after-tax — contributions.
Like 401(k)s and 403(b)s, the 457(b) contribution limit for 2023 is $22,500. The catch-up contribution limit is $7,500. In 2024, the limit is $23,000 with a catch-up contribution of up to $7,500.
Thrift savings plans
Thrift savings plans (TSPs) are retirement accounts for federal and uniformed services employees. Like 401(k)s, these plans let you contribute either pre- or post-tax dollars. But, unlike many 401(k) employer matches, most TSPs offer a full 5% contribution match. This means your employer will match your contributions up to 5% of your salary.
The annual contribution limit for 2023 is $22,500 (the 2024 limit is $23,000). The catch-up contribution limit is $7,500.
You can make up to $66,000 in total annual contributions in 2023, or $69,000 in 2024.
Best retirement plans for self-employed individuals and small businesses
If you're self-employed or a business owner with fewer than 100 employees, you'll have multiple retirement savings plans to choose from. Each plan has unique contribution limits and eligibility requirements. Take a closer look at your options below.
Solo 401(k)s
Solo 401(k)s are an option for self-employed individuals or business owners without full-time employees. Self-employed individuals can only contribute in one capacity, but business owners can contribute as both an employer and employee (and spouses of business owners may be able to contribute as well), meaning they can contribute twice as much. You can also make pre- or post-tax (Roth) contributions to your account.
The $22,500 contribution limit — as well as the additional $7,500 catch-up contribution for people age 50 or older – applies to the 2023 tax year. In 2023, you can also earn up to $66,000 in total annual contributions. If you're a business owner contributing as both an employer and employee, this means you can make up to $66,000 in total annual contributions. Those aged 50 or older can contribute $73,500.
In 2024, the limit increases to $23,000 with up to $7,500 in catch-up contributions. You can earn up to $69,000 in annual contributions. Those aged 50 or older can contribute $76,500.
SEP IRAs
Simplified employee pension (SEP) IRAs are retirement vehicles managed by small businesses or self-employed individuals. According to the IRS, employees (including self-employed individuals) are eligible if they meet the following requirements:
- Have reached age 21
- Have worked for the employer in at least three of the last five years
- Received at least $750 in compensation in 2022
SEP IRAs also require that all contributions to the plan are 100% vested. This means that each employee holds immediate and complete ownership over all contributions — including any employer match — to their account.
Vesting protects employees against financial loss. For instance, an employer can forfeit amounts of an employee's account balance that isn't fully vested if that employee hasn't worked more than 500 hours in a year for five years, according to the IRS.
You can contribute up to $66,000 or 25% of your employee's compensation in 2023 (the number increases to $69,000 in 2024). However, unlike with the solo 401(k), you can't make Roth (after-tax) contributions or catch-up contributions.
SIMPLE IRAs
SIMPLE IRAs are available to self-employed individuals or small businesses with no more than 100 employees. These retirement plans require employers to match each employee's contributions on a dollar-for-dollar basis up to 3% of the employee's salary, according to the IRS.
To qualify, employees (and self-employed individuals) must have made at least $5,000 in the last two years and expect to receive that same amount during the current year. But once you meet this requirement, you'll be 100% vested in all your SIMPLE IRA's earnings, meaning you have immediate ownership over both your and your employer's contributions.
Unlike other retirement plans, SIMPLE IRAs and SEP IRAs give you total control over your retirement account. If you work for a small business that offers either of these plans, this prevents your employer from taking back its contributions, or an employer match, in the event of your leave or termination.
Employees can contribute up to $15,500 in 2023 (the limit for 2024 is $16,000). You can also add on a catch-up contribution of $3,500 if you're 50 or older.
Payroll deduction IRAs
There's an even simpler way for small businesses to set up IRAs for employees. With payroll deduction IRAs, businesses delegate most of the hard work to banks, insurance companies, and other financial institutions. Self-employed people can also set up these retirement accounts.
In other words, employees can set up payroll deductions with those institutions to fund their IRAs. But you'll first need to consult your employer to figure out which institutions it has partnered with. These accounts are generally best for employees who don't have access to other employer-sponsored retirement plans like 401(k)s and 457(b)s.
For 2023, you can contribute up to $6,500 in annual contributions, and up to $1,000 in annual catch-up contributions for employees age 50 or older. This means you can set aside up to $7,500 if you're at least 50 years old. In 2024, those limits increase to $7,000 with $1,000 in catch-up contributions, or $8,000 total.
Which retirement plan is best for you?
If you're not a small business owner or self-employed individual, the best retirement plan for you usually depends on your type of employer, marital status, and short- and long-term savings goals. If you're employed, though, you'll still only have so much control since your employer determines which types of plans you can open.
However, for most employer-sponsored retirement accounts, you can decide whether or not to make pre-tax or post-tax (Roth) contributions to your account. Roth contributions are best for those who expect to pay more in taxes as they age, but you should consider pre-tax contributions if you don't mind paying taxes when you withdraw money from your account in retirement.
And you can boost your retirement savings even more by opening a separate IRA in addition to your employer-sponsored plan (you can still save toward retirement with an IRA if you're unemployed).
Self-employed individuals and small business owners also have a range of options. Solo 401(k)s and SEP IRAs are best for self-employed individuals and small businesses looking to maximize their annual retirement savings (you can make up to $66,000 in total annual contributions, or $69,000 in 2024, excluding the catch-up contribution). SIMPLE IRAs and payroll deduction IRAs are better options for small businesses that don't mind offering employees smaller annual contribution limits.