Choose a Retirement Savings Option

Employer-sponsored qualified retirement plans can be effective tools for saving for retirement. If your employer offers a retirement plan, participate in it and learn how you can take full advantage of the opportunity to save.

The most common employer-sponsored plans are:

401(k) plan

  • You elect to contribute a percentage of your pay to a plan account established for you.
  • Your contributions cannot exceed IRS and plan limits.
  • You don't pay taxes on the contributed amounts or the investment earnings in your plan account until you withdraw funds from the plan, usually when you retire.
  • Employer matches, if offered, provide you with an additional tax-deferred benefit.

Roth 401(k) plan

  • Contributions are made after tax.
  • Qualified distributions are tax free after you've had a Roth 401(k) at least five tax years and you're at least age 59½ or become disabled.
  • You can choose to make contributions to both types of 401(k) accounts.

Defined benefit (DB) plan

  • DB plans, also known as traditional pension plans, are becoming less prevalent as more private companies shift to defined contribution plans, such as 401(k)s. Pension plans are still common for government employees, however.
  • Your employer makes tax-deferred contributions.
  • When you retire, you receive a specified monthly pension, usually based on such factors as salary, age and seniority.
  • Pension income is generally included in your annual taxable income.
  • The federal Pension Benefit Guarantee Corporation insures private-sector DB plans.

403(b) plan

  • Many public schools and certain tax-exempt organizations sponsor 403(b) plans, also called tax-sheltered annuities.
  • You may be allowed to defer a portion of your pay on a pretax basis.
  • You may be allowed to make contributions to a designated Roth account within the plan.

Profit sharing plan

  • Your employer makes set or discretionary contributions to your plan account.
  • These contributions are generally allocated among eligible employees based on compensation.
  • You're taxed when you receive distributions from the plan.

Simplified Employee Pension (SEP) plan

  • A SEP is similar to a profit sharing plan except that employer contributions are made to IRAs established for each plan participant.
  • Contributions, together with any earnings they generate, grow tax deferred until distribution.


  • Small businesses (generally, those with 100 or fewer employees) may offer a Savings Incentive Match Plan for Employees, or SIMPLE.
  • These plans may be structured with IRAs for each participant.
  • Eligible employees can make pretax salary deferral contributions, and the employer is required to contribute as well.

Solo 401(k)

  • If you're a sole proprietor or operate another form of owner-only business, a solo 401(k) plan may be an option to look at.
  • This type of plan generally may cover the owner's spouse as well, provided the spouse also works in the business.

Learning about your employer-sponsored retirement savings plan increases its value as an effective retirement planning tool. Begin by finding out these plan basics:

  • When can you join the plan?
  • Can you transfer money from a previous employer's plan or an IRA?
  • How much can you contribute to the plan per pay period?
  • Does the company match the amount you contribute? If so, what is the percentage the company matches?
  • What investment options does the plan offer? Where can you get information about the options?
  • How often can you reallocate money in your account among investment options?
  • Are resources available to help you make investment decisions?
  • Can you take a loan from your account? A hardship withdrawal?
  • Can you make catch-up contributions at age 50 or older?
  • What happens to your savings if you leave the company?
  • How can you access your account?
  • Whom can you contact with questions about the plan?

Next steps

Follow these guidelines to take full advantage of your employer-sponsored retirement plan:

  • Make sure you understand how your employer-sponsored plan works.
  • If your employer matches a portion of contribution, contribute the maximum your employer matches.
  • Contribute as much as you can to your plan.

Log on to for additional information about employer-sponsored retirement plans.

This is not intended to be legal or tax advice or to provide a comprehensive discussion of 401(k) plans or other types of tax-qualified retirement plans. It is intended only as a general, nontechnical summary of certain basic concepts applicable to 401(k) and other types of tax-qualified retirement plans. Investors should consult a tax advisor for information concerning their individual situation.

Traditional and Roth IRAs are powerful tax-deferred savings tools for individuals and self-employed people.

Traditional IRA

  • Anyone with earned income can open and contribute to a traditional IRA, up to the maximum annual contribution limit, which is periodically adjusted for inflation.
  • Contributions are fully tax deductible if neither you nor your spouse actively participates in an employer-sponsored retirement plan.
  • A married couple generally can contribute twice as much to an IRA as an individual, even if one spouse doesn't work outside the home.
  • Combined contributions cannot exceed the maximum annual contribution limit, which is periodically adjusted for inflation.
  • If one of you does participate in an employer-sponsored plan, your IRA deduction may be limited or eliminated, depending on your adjusted gross income.
  • Even if you can't deduct your contributions, you can still save for retirement in a traditional IRA by making nondeductible contributions.
  • Traditional IRA investments grow tax deferred until you begin withdrawals from the IRA. Then, withdrawal amounts attributable to your deductible contributions and investment earnings will be subject to federal (and possibly state) income tax.

Roth IRA

  • Contributions to a Roth IRA aren't deductible, nor are they taxed when distributed.
  • After you've had a Roth IRA for at least five tax years, withdrawals of investment earnings are tax free if you're at least age 59½, become disabled or withdraw up to $10,000 for first-time home buying expenses.
  • A married couple generally can contribute twice as much to an IRA as an individual, even if one spouse doesn't work outside the home.
  • Combined contributions cannot exceed the maximum annual contribution limit, which is periodically adjusted for inflation.

This chart compares the features of traditional and Roth IRAs.

Compare Traditional and Roth IRAs
    Traditional IRA
  Roth IRA  Deductible 1 Non-deductible 1
Earnings grow tax deferred Yes Yes Yes
Contributions are taxed on withdrawal No Yes No
Earnings are taxed on withdrawal No 2 Yes Yes
Contributions are tax deductible No Yes No
Contributions allowed after age 70½ Yes No No
Minimum withdrawals required after age 70½ No 3 Yes Yes

1 Contributions to a traditional IRA may be deductible depending on your (and your spouse's) participation in the employer-sponsored retirement plan and your (and your spouse's) AGI. Your financial advisor can tell you if you qualify for a tax-deductible IRA.

2 After the account has been open for five tax years, a withdrawal of earnings from a Roth IRA is not subject to income tax or the 10% early withdrawal penalty if the individual is at least 59½, or dies, is disabled or uses up to $10,000 of the account's earnings for a first-time home purchase. Withdrawals of contributions are not subject to income tax and may not be subject to the 10% early withdrawal penalty.

3 During the account owner's lifetime only; RMD must be taken from inherited Roth IRAs.

Next steps

Work with your financial advisor to determine which type of IRA works best for your financial situation and goals.

These calculators can help you with your IRA decisions.

  • Roth IRA Versus Traditional IRA?
  • Roth IRA

Learn more about IRAs by reading Traditional or Roth: Which IRA Is Right for You?

This information is not intended as tax advice. Investors should consult a tax advisor.

An annuity is another tax-deferred way to save for retirement and receive lifetime income.

When you buy an annuity, you enter into a contract with a life insurance company. The company agrees to make payments to you and/or your beneficiary over your lifetime(s) or a set period, usually beginning at retirement. If you die before payouts begin, a death benefit is payable to your beneficiary. Contributions to annuities aren't tax deductible.

Like other retirement savings vehicles, annuities offer tax deferral on earnings from investments. But an annuity offers two features that most other types of savings plans don't:

  1. You can structure an annuity to provide you with an income you can't outlive.
  2. Annuities don't limit the annual amount you can contribute toward your retirement.

As with most other tax-deferred savings plans, you'll have to pay federal (and possibly) state income taxes on any earnings you withdraw from the annuity at or before retirement, and withdrawals before age 59½ may be subject to the 10% early withdrawal penalty. Also, surrender charges may apply if funds are withdrawn before the contract's surrender period is over.

Immediate or deferred income

  • Immediate annuities make payments to you soon after purchase.

  • Deferred annuities enable you to accumulate savings before receiving regular income payments. Taxes on earnings are deferred until your income payments begin.

Fixed or variable

  • Fixed annuities invest primarily in bonds and mortgages that offer fixed rates of return. They earn a guaranteed rate of interest for a specified period of time, and the interest rate is adjusted for each new period.

  • Variable annuities allow you to select underlying investment vehicles or subaccounts managed by professional money managers. Your investment value is not guaranteed and will fluctuate based on the performance of the underlying investments.

  • Any guarantee associated with an annuity is subject to the claims-paying ability of the issuing insurance company.

Next steps

Annuities are complex and not suitable for all investors, so it's important to talk with your financial advisor about them. Before purchasing an annuity, make sure you understand:

  • All the features.
  • Fees and expenses, including mortality and expense charges, administrative charges and investment advisory fees.
  • Tax consequences.
  • Surrender charges and 10% tax penalties if you withdraw money early.
  • Market risk.

Learn more about variable annuities by reading:

Invesco Distributors, Inc. does not offer annuities. This information is not intended as tax advice. Investors should consult a tax advisor.