An individual retirement account is a type of tax-advantaged investment account

A basic guide to retirement savings account options, the IRA and the 401(k)

The two main types of accounts are 401(k) plans and individual retirement accounts (IRAs)—but what do those mean, exactly? There are differences between the two types, as well as the subtypes beneath them.

There are four main types of IRAs to choose from

Those types are traditional, Roth, SEP, and SIMPLE. While all IRAs can help you save for retirement, each type has its own tax advantages and eligibility requirements, such as employment type or income level.

IRAs and 401(k) plans both help individuals save for retirement, but have their differences

Anyone can open an IRA, but 401(k) plans are accessible only through an employer. These two retirement vehicles also have different contribution limits per year, with 401(k) plans allowing you to contribute significantly more than an IRA.

Traditional IRAs are tax-deferred—meaning you’ll pay taxes when you withdraw funds during retirement, rather than before you invest in the IRA

You can typically deduct traditional IRA contributions from your taxes. To invest in a Roth IRA, on the other hand, you must contribute money that has already been taxed.

What's a rollover IRA?

A rollover IRA is a type of investment account that lets you move the money from an old retirement account into an IRA after you stop working for your employer. This move lets you keep your funds in a tax-deferred account without being hit with taxes, fees, or penalties. This article explains how you can roll over your money and highlights any restrictions to keep in mind. Learn more here.

Explore the key differences between 401(k) plans and IRAs

A 401(k) is employer-sponsored, may include matching contributions, and allows higher annual contributions (up to $23,000). An IRA is self-managed, offers greater control over investments, and has lower contribution limits ($7,000). Both plans come in traditional and Roth options, but income caps may limit IRA choices, while 401(k)s have no such restrictions.

529s vs. Roth IRA

Roth IRAs and 529 plans both offer tax advantages, but they serve different goals. 529s are state-run accounts meant for education, offering tax-free growth and withdrawals for qualified expenses. Roth IRAs are built for retirement, but can also be tapped for education, with more investment flexibility and fewer contribution limits.

Some people roll their 401(k) into an IRA to have more control over their account

However, some argue that you could end up paying less money to invest in a 401(k) plan than you would to invest in an IRA. This article offers a list of pros and cons regarding rolling a 401(k) into an IRA.

Learn about the differences between traditional and Roth IRAs

Traditional IRAs allow tax-deductible contributions, but withdrawals in retirement are taxed as income. Roth IRAs use after-tax dollars, offering tax-free withdrawals later, but income limits may restrict eligibility. Choosing between the two depends on your financial situation today and your future tax outlook.

A spousal IRA allows a working spouse to contribute to an IRA on behalf of their nonworking partner

This ensures both people can build financial security for the future. While it's not a separate account type, this provision requires couples to file a joint tax return to qualify, helping nonearning spouses save for retirement independently.

Roth IRAs were first introduced in the Taxpayer Relief Act of 1997

The Roth IRA is one of the most popular retirement accounts in the US. Nearly a quarter of Americans contributed to a Roth IRA in 2023. But this type of financial account hasn’t been around for that long.

Spousal IRAs give spouses who do not work a way to save for retirement

In most cases, only working individuals can open and contribute to an IRA. But the IRS has a special exception for married couples: the spousal IRA. It lets the working spouse open and contribute to an IRA on behalf of their nonworking spouse.

You have to earn under a certain gross amount per year to be eligible for a Roth IRA

A Roth IRA might make the most sense for someone confident that they will have a higher income in retirement than they do now. For 2025, those allowed to contribute to a Roth IRA must have a modified adjusted gross income (MAGI) of less than $150K.

Roth 401(k) plans vs regular 401(k) plans

A normal 401(k) defers tax payments to later, while a Roth requires no tax payments at withdrawal time. Financial experts often recommend investing in a Roth 401(k) plan or Roth IRA when someone first starts their career to lock in a relatively low tax rate.

The Roth IRA was named after Senator William V. Roth, Jr.

The Roth IRA was established by Senator William Roth in 1997 as part of the Taxpayer Relief Act. Roth IRAs differ from traditional IRAs in that they allow individuals to invest after-tax income for retirement rather than pre-tax income.

7 things to know about inherited IRA rules

An inherited IRA is any kind of IRA or 401K plan you inherited from someone after they’ve died. Since there are different tax advantages for each type of retirement account, the rules you have to follow widely differ based on the account, your relationship to the deceased, and how you want to use the money. Here are the seven things you must know to navigate an inherited IRA.

Although anyone can contribute to a traditional IRA, not everyone can access its tax deductions

If you or your spouse contributes to a 401(k), you likely won’t be able to deduct your traditional IRA contributions from your taxes. On the flip side, if you don’t contribute to an employer-sponsored retirement account, you’re probably eligible for that tax deduction.

Having two retirement accounts has its pros and cons

Contributing to both an IRA and a 401(k) lets you increase your retirement savings by about 30% every year. However, you’ll also spend more time actively investing that money and pay more in fees.

Backdoor Roth IRAs are loopholes used to access the tax advantages of a Roth IRA for individuals who otherwise make too much money to qualify for one

Backdoor IRAs work by investing money into a traditional IRA, and then converting that traditional IRA to a Roth IRA.

In most cases, if you withdraw your money from an IRA before you turn 59½ years old, you'll face a hefty 10% penalty

However, there are a few exceptions to this rule. In the case of adoption, death, terminal illness, education, homebuying, and more, you can access your funds without a strike against you. A chart outlines the different exceptions to this rule, plus the accounts to which they apply.

Learn how to withdraw $1K from your IRA

Normally, you face a large penalty if you take money out of your IRA before age 59½. Now the IRS is letting individuals withdraw up to $1K without facing the 10% fee (with the exception of Roth IRAs) for emergencies.

Three ways to save for your child’s future

Parents can open a custodial Roth IRA when their child starts to earn income (think: summer job), which can help them start saving early. For example, 529 accounts help parents save for college, while UTMA/UGMA accounts function like trusts.

A 401(k) plan allows workers to save for retirement without paying taxes until later

With a 401(k) plans you can invest more money now and let it grow with compound interest. Americans have more than $7T invested in these types of accounts.

If your job doesn’t offer a 401(k), you still have retirement savings options

Do you know more than a third of working adults aren't offered a 401(k) through their jobs? If you're part of that group, you still have options for retirement savings, including IRAs, taxable investment accounts, and more.

The prevalence of 401(k) plans and IRAs over pensions shifted investment risk from employers to employees.

Explore a guide to 529 college savings plans

Investors put after-tax dollars into these education-earmarked accounts, and like a 401(k) or IRA, they invest them into stocks, bonds, or funds. When it comes time to withdraw, investors do not pay any taxes on distributions. However, the money must be used for approved expenses like college tuition, textbooks, and trade schools.

529 savers can now roll funds into a Roth IRA

One of the key disadvantages of a 529 college savings plan is the possibility a beneficiary doesn’t end up going to college. Nonqualified withdrawals are subject to a 10% penalty. However, as of 2024, the SECURE Act 2.0 started allowing 529 savers to roll over $35K into a Roth IRA.

The IRS sets new contribution limits for IRAs and 401(k) plans each year

In 2024, individuals could contribute up to $7K across all their IRAs. People aged 50 and older could contribute up to $8K. For 2025, the IRS kept the same contribution limits.

Only half of American workers have retirement accounts, like 401(k) plans, through their current jobs.

Annuitants have to pay income taxes on the annuity payments they receive, unless their annuities are folded into a Roth IRA

In most other cases, annuities grow tax-deferred until annuitants start to receive payments. Those payments are then taxed as regular income. Nonqualified annuities, which are bought with after-tax dollars, have different rules.

401(k) plans and pensions differ in who has control over the investments

With pension plans, a company contributes to an investment fund from which it distributes regular payments to a retired worker until their death. A 401(k) gives the worker control over contributions in a tax-advantaged account.

Retail investors are individuals who trade stock for themselves

Institutional investors, on the other hand, are investing for someone else. There are big differences between the two, one being that institutional investors can be granted certain special treatment (like being able to purchase IPOs right away).

While annuities can guarantee an income for risk-averse investors, they may play it too safe for others

Whether or not an annuity is the right investment option depends on the buyer’s unique needs. People who plan to retire soon are more likely to opt for the lower-risk investment, but there may be opportunity costs for people seeking higher returns.

The IRS answers basic questions about 529 savings plans

The plans can be used to pay for any qualifying education expenses from kindergarten to college, including tuition, fees, room and board, and even computers. Anyone can set up as many 529 plans as they want for relatives, friends, or themselves.

Annuities can help protect investors from outliving their retirement savings

While an annuity is also a contract between an individual and an insurance company, a life insurance policy differs in that it protects the beneficiaries in the event of the policyholder’s death.

Many states offer a tax deduction for investing in their 529 plans

Different states offer different types of 529 plans (prepaid and savings), and they can require different minimum contributions. While some states offer tax deductions for residents who invest in their state’s plan, investors can choose to use a different state’s plan instead.

Who has retirement accounts?

Though every worker wants to retire, only some have retirement accounts. Data from the Census Bureau shows those who currently own such accounts are disproportionately white and Asian men in the Baby Boomer generation, suggesting access to these crucial retirement plans is not equal. Dive into the numbers and get a sense of who has retirement accounts here.

Series I bonds are a form of government savings bonds created to shield your investments from inflation

Specifically, I bonds earn interest from both a fixed rate and an inflation rate. This article explains who might benefit from investing in I Bonds—for instance, people seeking to invest savings they do not need to access in the near future.

Asset location is the type of account an asset is placed in

Investors are likely familiar with “asset allocation,” creating an ideal mix of different asset types in an individual's portfolio. But asset location matters just as much for investors who are conscious of how much they owe in capital gains taxes.

Mutual fund investors typically must pay a variety of different types of taxes associated with their investment, unless the funds are within tax-advantaged accounts like a 401(k) or IRA.

Seven early retirement lessons

After one year of retirement under his belt, financial publication Kiplinger's former editor has learned some lessons. Specifically, in this article, he shares his best early retirement advice, from when it makes sense to convert a traditional IRA to a Roth in early retirement, to how to prepare for retirement from a psychological perspective. Read more here.

Real estate investment trusts help give portfolios more exposure to real estate

Also known as a REIT, a real estate investment trust is a type of company that invests in a portfolio of real estate, such as apartment buildings or malls. Investors can buy shares of the REIT to participate in its portfolio’s gains and losses.

What is a 401(k)?

Should you get a 401(k)? To make sense of this obscure piece of tax code, here’s a beginner’s guide to one of the more common forms of retirement savings in the US. Learn the history of the 401(k), how to sign up for one, the different types, and more in this well-organized and concise explainer from Investopedia.

Technically speaking, a 401(k) is a type of pension

The Employee Retirement Income Security Act of 1974 lumped both defined-contribution plans like 401(k) plans, and defined benefit plans (like what is colloquially known as a pension) under the term “pension” in order to protect workers and make retirement plan enforcement simpler. Learn more about the ERISA here.

529 plan advantages include state-specific tax exemptions and more

For National 529 Day, celebrated on May 29, an expert explained the basics of 529 accounts. Outside of forced education savings, advantages include flexibility around beneficiaries (they can be changed easily), how unused funds can be rolled into a Roth IRA, and state-specific tax exemptions.

Annuities are financial products typically used by retirees looking for guaranteed income streams.

The average American contributed nearly $6,000 to a 401(k) retirement account in 2023.

401(k) is a section of the US tax code

How did 401(k) plans get their name? Check out the 401(k) section (and subsection) of the US tax code made famous by benefits consultant Ted Benna. Tap into your inner accountant and check out the now-famous portion of the dense, 10,000-section tome that is the Internal Revenue Code.

Americans ages 30 to 34 have $44,800 in their 401(k) accounts on average

Americans ages 28 to 44 save about 13.5% of their pretax income on average, which is close to the recommended retirement savings rate of 15%.

Financial rules that many FIRE followers live by include guidelines around tax efficiency and more

Many FIRE proponents follow specific financial rules, like the 4% rule, in order to achieve FIRE. They also take steps to create an efficient tax strategy and take advantage of compound interest.