9 best retirement plans in February 2025

1. Defined contribution plans

Since their introduction in the early 1980s, defined contribution (DC) plans, which include 401(k)s, have all but taken over the retirement marketplace. In March 2023, 67 percent of nongovernment workers had access to a defined contribution plan, compared to just 15 percent with access to a defined benefits plan, like a pension, according to the Bureau of Labor Statistics.

The 401(k) plan is the most ubiquitous DC plan among employers of all sizes, while the similarly structured 403(b) plan is offered to employees of public schools and certain tax-exempt organizations, and the 457(b) plan is most commonly available to state and local governments.

The employee's contribution limit for each plan is $23,500 in 2025. There’s also a catch-up contribution of $7,500 for participants aged 50 and older. And starting in 2025, a higher catch-up contribution limit of $11,250 applies for employees aged 60, 61, 62 and 63 who participate in these plans.

Many DC plans offer a Roth version, such as the Roth 401(k) in which you use after-tax dollars to contribute, but you can take the money out tax-free at retirement.

"The Roth election makes sense if you expect your tax rate to be higher at retirement than it is at the time you're making the contribution," says David Littell, professor emeritus of taxation at The American College of Financial Services.

401(k) plans

A 401(k) plan is a tax-advantaged plan that offers a way to save for retirement. With a traditional 401(k), an employee contributes to the plan with pre-tax wages, meaning contributions are not considered taxable income. The 401(k) plan allows these contributions to grow tax-free until they’re withdrawn at retirement. At retirement, distributions create a taxable gain, though withdrawals before age 59 ½ may be subject to taxes and additional penalties.

With a Roth 401(k), an employee contributes after-tax dollars and gains are not taxed as long as they are withdrawn after age 59 1/2.

403(b) plans

A 403(b) plan is much the same as a 401(k) plan, but it’s offered by public schools, charities and some churches, among others. The employee contributes pre-tax money to the plan, so contributions are not considered taxable income, and these funds can grow tax-free until retirement. At retirement, withdrawals are treated as ordinary income, and distributions before age 59 ½ may create additional taxes and penalties.

Similar to the Roth 401(k), a Roth 403(b) allows you to save after-tax funds and withdraw them tax-free in retirement.

457(b) plans

A 457(b) plan is similar to a 401(k), but it’s available only for employees of state and local governments and some tax-exempt organizations. In this tax-advantaged plan, an employee can contribute to the plan with pre-tax wages, meaning the income is not taxed. The 457(b) allows contributions to grow tax-free until retirement, and when the employee withdraws money, it becomes taxable.

2. IRA plans

An IRA is a valuable retirement plan created by the U.S. government to help workers save for retirement. Individuals can contribute up to $7,000 to an account in 2025, and workers age 50 and older can contribute up to $8,000.

There are many kinds of IRAs, including a traditional IRA, Roth IRA, spousal IRA, rollover IRA, SEP IRA and SIMPLE IRA. Here’s what each is and how they differ from one another.

Traditional IRA

A traditional IRA is a tax-advantaged plan that allows you significant tax breaks while you save for retirement. Anyone who earns money by working can contribute to the plan with pre-tax dollars, meaning any contributions are not taxable income. The IRA allows these contributions to grow tax-free until the account holder withdraws them at retirement and they become taxable. Earlier withdrawals may leave the employee subject to additional taxes and penalties.

Roth IRA

A Roth IRA is a newer take on a traditional IRA, and it offers substantial tax benefits. Contributions to a Roth IRA are made with after-tax money, meaning you’ve paid taxes on money that goes into the account. In exchange, you won’t have to pay tax on any contributions and earnings that come out of the account at retirement.

Spousal IRA

IRAs are normally reserved for workers who have earned income, but the spousal IRA allows the spouse of a worker with earned income to fund an IRA as well. However, the working spouse’s taxable income must be more than the contributions made to any IRAs, and the spousal IRA can either be a traditional IRA or a Roth IRA.

Rollover IRA

A rollover IRA is created when you move a retirement account such as a 401(k) or IRA to a new IRA account. You “roll” the money from one account to the rollover IRA, and can still take advantage of the tax benefits of an IRA. You can establish a rollover IRA at any institution that allows you to do so, and the rollover IRA can be either a traditional IRA or a Roth IRA. There’s no limit to the amount of money that can be transferred into a rollover IRA.

A rollover IRA also allows you to convert the type of retirement account, from a traditional 401(k) to a Roth IRA. These types of transfers can create tax liabilities, however, so it’s important to understand the consequences before you decide how to proceed.

SEP IRA

The SEP IRA is set up like a traditional IRA, but for small business owners and their employees. Only the employer can contribute to this plan, and contributions go into a SEP IRA for each employee rather than a trust fund. Self-employed individuals can also set up a SEP IRA.

Contribution limits in 2025 are 25 percent of compensation or $70,000, whichever is less. Figuring out contribution limits for self-employed individuals is a bit more complicated.

"It's very similar to a profit-sharing plan," says Littell, because contributions can be made at the discretion of the employer.

SIMPLE IRA

With 401(k) plans, employers have to pass several nondiscrimination tests each year to make sure that highly compensated workers aren't contributing too much to the plan relative to the rank-and-file.

The SIMPLE IRA bypasses those requirements because the same benefits are provided to all employees. The employer has a choice of whether to contribute a 3 percent match or make a 2 percent non-elective contribution even if the employee saves nothing in his or her own SIMPLE IRA.

3. Solo 401(k) plan

Alternatively known as a Solo-k, Uni-k and One-participant k, the solo 401(k) plan is designed for a business owner and his or her spouse.

Because the business owner is both the employer and employee, elective deferrals of up to $23,500 can be made in 2025, plus a non-elective contribution of up to 25 percent of compensation up to a total annual contribution of $70,000 for businesses, not including catch-up contributions of $7,500 for 2025.

4. Traditional pensions

Traditional pensions are a type of defined benefit (DB) plan, and they are one of the easiest to manage because so little is required of you as an employee.

Pensions are fully funded by employers and provide a fixed monthly benefit to workers at retirement. But DB plans are on the endangered species list because fewer companies are offering them. Just 15 percent of private industry workers had access to a pension plan in March 2023, according to the Bureau of Labor Statistics.

Why? DB plans require the employer to make good on an expensive promise to fund a hefty sum for your retirement. Pensions, which are payable for life, usually replace a percentage of your pay based on your tenure and salary.

A common formula is 1.5 percent of final average compensation multiplied by years of service, according to Littell. A worker with an average pay of $50,000 over a 25-year career, for example, would receive an annual pension payout of $18,750, or $1,562.50 a month.

5. Guaranteed income annuities (GIAs)

Guaranteed income annuities are generally not offered by employers, but individuals can buy these annuities to create their own pensions. You can trade a big lump sum at retirement and buy an immediate annuity to get a monthly payment for life, but most people aren't comfortable with this arrangement. More popular are deferred income annuities that are paid into over time.

For example, at age 50, you can begin making premium payments until age 65, if that's when you plan to retire. "Each time you make a payment, it bumps up your payment for life," says Littell.

You can buy these on an after-tax basis, in which case you'll owe tax only on the plan's earnings. Or you can buy it within an IRA and can get an upfront tax deduction, but the entire annuity would be taxable when you take withdrawals.

6. The Federal Thrift Savings Plan

The Thrift Savings Plan (TSP) is a lot like a 401(k) plan on steroids, and it’s available to government workers and members of the uniformed services.

Participants choose from five low-cost investment options, including a bond fund, an S&P 500 index fund, a small-cap fund and an international stock fund — plus a fund that invests in specially issued Treasury securities.

On top of that, federal workers can choose from among several lifecycle funds with different target retirement dates that invest in those core funds, making investment decisions relatively easy.

7. Cash-balance plans

Cash-balance plans are a type of defined benefit, or pension plan, too.

But instead of replacing a certain percentage of your income for life, you are promised a certain hypothetical account balance based on contribution credits and investment credits (e.g., annual interest). One common setup for cash-balance plans is a company contribution credit of 6 percent of pay plus a 5 percent annual investment credit, says Littell.

The investment credits are a promise and are not based on actual contribution credits. For example, let's say a 5 percent return, or investment credit, is promised. If the plan assets earn more, the employer can decrease contributions. In fact, many companies that want to shed their traditional pension plan convert to a cash-balance plan because it allows them better control over the costs of the plan.

8. Cash-value life insurance plan

Some companies offer cash-value life insurance plans as a benefit.

There are various types: whole life, variable life, universal life and variable universal life. They provide a death benefit while at the same time building cash value, which could support your retirement needs. If you withdraw the cash value, the premiums you paid – your cost basis – come out first and are not subject to tax.

"There are some similarities to the Roth tax treatment, but more complicated,” says Littell. “You don't get a deduction on the way in, but if properly designed, you can get tax-free withdrawals on the way out."

9. Nonqualified deferred compensation plans (NQDC)

Unless you're a top executive in the C-suite, you can pretty much forget about being offered an NQDC plan. There are two main types: One looks like a 401(k) plan with salary deferrals and a company match, and the other is solely funded by the employer.

The catch is that most often the latter one is not really funded. The employer puts in writing a "mere promise to pay" and may make bookkeeping entries and set aside funds, but those funds are subject to claims by creditors.

The plans above were established for the express purpose of funding retirement, but other special tax-advantaged accounts – namely, health savings accounts (HSAs) and 529 education savings plans – can also be used to fund retirement. 

HSAs were created as a way to save for healthcare expenses, but they can effectively be used as a supplemental retirement account. HSAs offer a triple tax advantage: You can contribute on a pre-tax basis, your money can grow tax-free and withdrawals are tax-free if used for qualified healthcare expenses. But when you hit age 65, any money in the account can be withdrawn and used for any purpose without a penalty, though you’ll owe taxes on the withdrawal at ordinary income rates. This feature makes the HSA function like a traditional IRA, if held to age 65.

While the 529 plan was established as a way to save for education expenses, it can now be used as a source of money to fund a Roth IRA, subject to a few important restrictions. The legal change eliminates one of the major disadvantages of the 529 plan – the potential to leave stranded money in the account – and allows it to be used for the key need of retirement saving.

While these plans are not intended to be used as primary retirement accounts, you can still use them to supplement your retirement savings if you’ve exhausted other better avenues.

Key plan benefits to consider

Virtually all retirement plans offer a tax advantage, whether it's available upfront during the savings phase or when you're taking withdrawals. For example, traditional 401(k) contributions are made with pre-tax dollars, reducing your taxable income. Roth 401(k) plans, in contrast, are funded with after-tax dollars but withdrawals are tax-free. (Here are other key differences between the two.)

Some retirement savings plans also include matching contributions from your employer, such as 401(k) or 403(b) plans, while others don’t. When trying to decide whether to invest in a 401(k) at work or an individual retirement account (IRA), go with the 401(k) if you get a company match – or do both if you can afford it.

If you were automatically enrolled in your company's 401(k) plan, check to make sure you’re taking full advantage of the company match if one is available.

And consider increasing your annual contribution, since many plans start you off at a paltry deferral level that is not enough to ensure retirement security. About 40 percent of 401(k) plans that offer automatic enrollment, according to Vanguard, use a default savings deferral rate of just 3 percent or less. Yet T. Rowe Price says you should “aim to save at least 15 percent of your income each year.”

If you're self-employed, you also have several retirement savings options to choose from. In addition to the plans described below for rank-and-file workers as well as entrepreneurs, you can also invest in a Roth IRA or traditional IRA, subject to certain income limits, which have smaller annual contribution limits than most other plans. You also have a few extra options not available to everyone, including the SEP IRA, the SIMPLE IRA and the solo 401(k).

Which retirement plan is best for you?

In many cases, you simply won’t have a choice of retirement plans. You’ll have to take what your employer offers, whether that’s a 401(k), a 403(b), a defined-benefit plan or something else. But you can supplement that with an IRA, which is available to anyone regardless of their employer.

Here’s a comparison of the pros and cons of a few retirement plans.

Employer-offered retirement plans

Defined-contribution plans such as the 401(k) and 403(b) offer several benefits over a defined-benefit plan such as a pension plan:

• Portability: You can take your 401(k) or 403(b) to another employer when you change jobs or even roll it into an IRA at that point. A pension plan may stick with your employer, so if you leave the company, you may not have a plan.
• Potential for higher returns: A 401(k) or 403(b) may offer the potential for much higher returns because it can be invested in higher-return assets such as stocks.
• Freedom: Because of its portability, a defined-contribution plan gives you the ability to leave an employer without fear of losing retirement benefits.
• Not reliant on your employer’s success: Receiving an adequate pension may depend a lot on the continued existence of your employer. In contrast, a defined-contribution plan does not have this risk because of its portability.

While those advantages are important, defined-benefit plans offer some pros, too:

• Income that shouldn’t run out: One of the biggest benefits of a pension plan is that it typically pays until your death, meaning you will not outlive your income, a real risk with 401(k), 403(b) and other such plans.
• You don’t need to manage them: Pensions don’t require much of you. You don’t have to worry about investing your money or what kind of return it’s making or whether you’re properly invested. Your employer takes care of all of that.

So those are important considerations between defined-contribution plans and defined-benefit plans. More often than not, you won’t have a choice between the two at any individual employer.

Retirement plans for self-employed or small business owners

If you’re self-employed or own a small business, you have some further options for creating your own retirement plan. Three of the most popular options are a solo 401(k), a SIMPLE IRA and a SEP IRA, and these offer a number of benefits to participants:

• Higher contribution limits: Plans such as the solo 401(k) and SEP IRA give participants much higher contribution limits than a typical 401(k) plan.
• The ability to profit share: These plans may allow you to contribute to the employee limit and then add in an extra helping of profits as an employer contribution.
• Less regulation: These retirement plans typically reduce the amount of regulation required versus a standard plan, meaning it’s easier to administer them.
• Investible in higher-return assets: These plans can be invested in higher-return assets such as stocks or stock funds.
• Varied investment options: Unlike a typical company-administered retirement plan, these plans may allow you to invest in a wider array of assets.

So those are some of the key benefits of retirement plans for the self-employed or small business owners.

How to get started

With some of these retirement plans (such as defined benefit and defined contribution plans), you’ll have access to the plan through your employer. So if your employer doesn’t offer them, you really don’t have that option at all. But if you’re self-employed (or even just running a side gig) or earn any income, then you have options to set up a retirement plan for yourself.

First, you’ll need to determine what kind of account you’ll need. If you’re not running a business, then your option is an IRA, but you’ll need to decide between a traditional and a Roth IRA.

If you do have a business – even a one-person shop – then you have a few more options, and you’ll need to come up with the best alternative for your situation.

Then you can contact a financial institution to determine if they offer the kind of plan you’re looking for. In the case of IRAs, almost all large financial institutions offer some form of IRA, and you can quickly set up an account at one of the major online brokerages.

In the case of self-employed plans, you may have to look a little more, since not all brokers have every type of plan, but high-quality brokers offer them and often charge no fee to establish one.

What is the best investment strategy for retirement?

Many workers have both a 401(k) plan and an IRA at their disposal, so that gives them two tax-advantaged ways to save for retirement, and they should make the most of them. But it can make sense to use your account options strategically to really max out your benefits.

One of your biggest advantages is actually an employer who matches your retirement contributions up to some amount. The most important goal of saving in a 401(k) is to try and max out this employer match. It’s easy money that provides you an immediate return for saving.

For example, this employer “match” will often give you 50 to 100 percent of your contribution each year, up to some maximum, perhaps 3 to 5 percent of your salary.

To optimize your retirement accounts, experts recommend investing in both a 401(k) and an IRA in the following order:

1. Max out your 401(k) match: The 401(k) is your top choice if your employer offers any kind of match. Once you receive this maximum free money, consider investing in an IRA.
2. Max out your IRA: Turn to the IRA if you’ve maxed out your 401(k) match or if your employer doesn’t offer a 401(k) plan or a match. Experts favor the Roth IRA because of all its perks.
3. Then max out your 401(k): If you’ve maxed out your IRA and you can save more, you can turn back to your 401(k) and add more up until the maximum annual contribution.

In any case, the best strategy to secure your financial future is to top out your accounts, saving the maximum legal amounts each year. The earlier you start investing for your future, the more your money will be able to compound, and these tax advantages can help you amass money even more quickly because you won’t have the extra drag from taxes.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.

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