Retirement Accounts

A retirement account is a legal wrapper around ordinary investments. Inside it you can hold the same index funds, bonds or target-date funds you could buy anywhere; what changes is how the money is taxed and when you can reach it.

Most retirement accounts come in two tax versions. A traditional account takes pre-tax or deductible money and taxes withdrawals as ordinary income, which makes it a tax-deferred account. A Roth account, such as a Roth IRA or a Roth 401(k), takes money that has already been taxed and pays qualified withdrawals tax-free. Many workplace plans offer both, and you can split your contributions between them.

Retirement accounts are one branch of the wider family of tax-advantaged accounts, which also includes health and education accounts. Money you invest without any wrapper sits in a taxable brokerage account instead, with no limits and no tax shelter.

Which accounts you can use depends mostly on where you work. Your employer decides whether you get a 401(k), a 403(b), a 457(b) or no plan at all, while anyone with taxable compensation can open an individual retirement account on their own. Self-employed people and small businesses have simpler plans of their own, and some employers still offer a traditional pension alongside, or instead of, an account. You can hold several types at once; the table below compares their 2026 limits.

The details differ by account, but a handful of rules run through almost all of them. Limits are set per person rather than per account: your employee deferrals to every 401(k), 403(b) and Thrift Savings Plan share one contribution limit even across employers, while a governmental 457(b) has a separate limit of its own. Opening a second IRA adds no room either, because the $7,500 IRA limit for 2026 covers all your traditional and Roth IRAs together.

A workplace plan and an IRA are not either-or: the limits are separate, and many people use both. They differ in who sets the menu, how much fits and how the money can come out.

A workplace plan holds far more, $24,500 of deferrals in 2026 against $7,500 for an IRA, and it is the only place to collect an employer match. It may also allow a loan of up to 50% of your vested balance, or $10,000 if that is more, and never more than $50,000. IRAs cannot lend at all. The rule of 55 applies only to workplace plans, and a governmental 457(b) charges no 10% additional tax at any age, except on money rolled in from other plans or IRAs.

An IRA usually offers a wider choice of investments, since you pick the provider. Its deduction can vanish if you are covered at work: for 2026, the traditional IRA deduction phases out between $81,000 and $91,000 of modified AGI for a single filer in a workplace plan, and between $129,000 and $149,000 for a joint filer who is covered. Roth IRA eligibility depends on income alone, not on coverage at work.

Creditor protection differs too. Federal law requires private-sector plans covered by ERISA to bar the assignment of benefits, with exceptions such as a qualified domestic relations order in a divorce. In bankruptcy, traditional and Roth IRA savings are protected up to $1,711,975 for cases filed from April 1, 2025, not counting money rolled over from an employer plan.

The costliest retirement-account errors rarely involve picking the wrong fund. They come from timing and paperwork, and a few cannot be reversed: the IRS cannot waive the limit of one 60-day IRA rollover a year, for example. Job changes deserve extra care, because that is when balances move and old accounts get forgotten. A review whenever you change jobs, marry, divorce or turn 50, 59½ or 73, including a check of every beneficiary form, catches most of them.