Guide
Retirement account types: what each is for and how to compare
This guide is for anyone who keeps hearing the names 401(k), IRA, Roth and pension and wants a plain map of what each one is for. It explains the purpose of each, what to compare, and where to look up the details that change. It does not state contribution limits, income thresholds or benefit amounts, because those are updated and depend on your situation. It is general information, not financial, tax or legal advice, and it names no providers or products.
The short version
Retirement income usually comes from up to three kinds of sources: accounts you fund yourself (workplace plans and IRAs), benefits promised to you (a pension, if you have one), and Social Security. The accounts differ mainly in who sets them up, how they are taxed, and what rules apply to putting money in and taking it out.
Workplace plans
A 401(k) is a workplace plan in which you choose to have part of your pay go into an individual account. The IRS describes it as a plan feature that lets an employee elect to have the employer contribute a portion of wages to the account. Employers may also add matching contributions if the plan allows, and a plan may require years of service before matching money is fully yours (vesting). Similar plans exist for some nonprofit and public employers under different names.
What it is for: regular saving through payroll, often with a match. What to compare: whether there is a match and how it works, the investment choices and their yearly costs, whether the plan offers a Roth option, and rules on loans and leaving the employer. Use our 401(k) match worksheet to see what your typed match formula is worth, and read whether to contribute enough for the full match for the decision itself.
Individual retirement accounts (IRAs)
An IRA is an account you open yourself, outside any employer. The two common kinds differ in when you pay tax. With a traditional IRA, contributions may be deductible depending on your situation, and withdrawals are generally taxed later as income. With a Roth IRA, contributions are made with money you have already paid tax on, and qualified withdrawals can be tax free, but eligibility to contribute depends on income. IRS Publication 590-A covers contributions and 590-B covers withdrawals.
What it is for: saving beyond or apart from a workplace plan, or when a plan has no match or poor options. What to compare: tax treatment now versus later, eligibility rules, investment choices and costs, and rules for early withdrawals. Our guides on Roth versus traditional IRAs and on using a Roth IRA when income may rise go through that trade-off.
Pensions
A traditional pension, also called a defined benefit plan, promises a payment in retirement based on a formula, often involving pay and years of service. Your employer, not you, carries the investment risk. Key questions are when you can start, how the amount changes with the start age, and whether a spouse continues to receive anything. See how pensions fit into retirement income.
Social Security
Social Security is a public program that pays benefits based on your earnings record, and the amount depends on when you start. It is not an account you control, so there is nothing to invest, but the choice of start age is a real decision. The Social Security Administration publishes your personal estimate in your online account and explains how the claiming age and your earnings affect it. Our article on when to claim Social Security lays out the trade-offs.
Comparing them side by side
| Type | Who sets it up | Main purpose | Things to check |
|---|---|---|---|
| Workplace plan (401(k) and similar) | Your employer, you choose to contribute | Payroll saving, possible match | Match terms, vesting, investment costs, Roth option |
| Traditional IRA | You | Extra saving, tax deferral | Deduction rules, withdrawal taxes, early withdrawal rules |
| Roth IRA | You | Extra saving, potential tax-free withdrawals | Income eligibility, rules for qualified withdrawals |
| Pension | Your employer | Promised monthly income | Formula, start ages, survivor options |
| Social Security | Government program | Baseline lifetime income | Your estimate, claiming age, spouse rules |
A way to think about the order
Many general guides discuss the order in this sequence: capture any employer match, then consider an IRA, then add to the workplace plan, while keeping an emergency cushion and watching high-cost debt. That is a common starting framework, not a rule, and your tax situation, cash flow and goals can change it. Our article on increasing your 401(k) or funding a Roth IRA next works through one version of it.
Before you decide
- Look up current limits and eligibility rules at the IRS, in Publication 590-A for contributions and 590-B for withdrawals, rather than relying on any article, including this one.
- Get your Social Security estimate from the Social Security Administration, not from a third party.
- Ask your plan administrator for the plan documents on match, vesting and fees.
- For tax questions about your own return, ask a licensed tax professional.
Where this comes from
We checked the IRS 401(k) plan overview for the description of elective deferrals, matching contributions and vesting. The descriptions of traditional and Roth IRAs follow the structure of IRS Publications 590-A and 590-B, and the Social Security points follow the public information of the Social Security Administration. Rules and figures change, so check those sources for the current year before acting.