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Retirement account types and benefits
Written by: New York Life Editorial Team
Reviewed by: New York Life Compliance Team
Updated: July 29, 2026
According to Gallup, only 28% of adults in households earning less than $50,000 have a retirement savings plan, compared to 83% of those earning $100,000 or more.¹
One reason retirement planning can feel overwhelming is the number of account options available. Between 401(k)s, 403(b)s, traditional IRAs, and Roth IRAs, it’s easy to wonder which account is best.
Luckily, most retirement accounts share the same goal: helping you save and invest for the future. The biggest difference is how and when they’re taxed. Understanding those differences can help you make more informed decisions and build a retirement strategy that supports your long-term goals.
Key takeaways
- The biggest difference between retirement account types is how and when you pay taxes on your contributions and withdrawals.
- Employer-sponsored plans like 401(k)s and 403(b)s often include matching contributions, which can help accelerate retirement savings.
- Many people benefit from having both tax-deferred and tax-free retirement savings to provide more flexibility in retirement.
- Retirement accounts help you build wealth, but insurance and income planning help protect the future you’re working toward.
Why your retirement account choice matters
When people compare retirement account types, they’re often looking for the “best” account. In reality, the better question is: Which account (or combination of accounts) fits your situation?
Most retirement accounts fall into one of two categories:
- Tax-deferred accounts. You generally receive a tax benefit today and pay taxes when you withdraw the money in retirement.
- Tax-free accounts. You contribute after-tax dollars today, but qualified withdrawals in retirement are generally tax-free. For Roth accounts, this typically means you're at least age 59½ and have held the account for at least five years.
Many retirement strategies include a mix of tax-deferred and tax-free accounts to provide flexibility as income needs, tax laws, and life circumstances change.
Here’s a simple way to think about it:
|
Yes |
Yes |
|
|
Usually yes |
Yes |
|
|
No |
No (on qualified withdrawals) |
|
|
No |
No (on qualified withdrawals) |
Employer-sponsored plans: 401(k)s and 403(b)s
For many Americans, a workplace retirement plan is the first place they begin saving for retirement.
According to the Bureau of Labor Statistics, 75% of workers have access to a retirement plan through their employer, but only 56% participate.² Taking advantage of a workplace retirement plan can be one of the most effective ways to build long-term retirement savings.
What is a 401(k)?
A 401(k) is a retirement savings plan offered by many for-profit employers. Savings are typically automatic because your employer deducts your contributions from your paycheck before it ever hits your bank account.
Many 401(k) plans allow you to make either:
- Traditional (pre-tax) contributions, which may reduce your taxable income today
- Roth contributions, which are taxed today but may allow for tax-free withdrawals in retirement
One of the biggest benefits of a 401(k) is that many employers offer matching contributions. For example, if your employer matches 100% of your contributions up to 6% of your salary, contributing enough to receive the full match can immediately double the amount you save toward retirement.
What is a 403(b)?
A 403(b) works much like a 401(k). However, 403(b) plans are commonly available to employees of:
- Public schools
- Colleges and universities
- Hospitals
- Religious organizations
- Certain nonprofit organizations
Like a 401(k), a 403(b) may offer traditional pre-tax contributions, Roth contributions, employer matching contributions, and tax-advantaged growth.
401(k) vs. 403(b) Comparison Chart
|
Typically offered by for-profit employers |
Typically offered by nonprofits, schools, and hospitals |
|
Traditional and Roth options may be available |
Traditional and Roth options may be available |
|
Employer match may be available |
Employer match may be available |
|
Contributions grow tax-deferred or tax-free depending on account type |
Contributions grow tax-deferred or tax-free depending on account type |
Traditional IRA: tax benefits today
A traditional IRA (individual retirement account) is one you open on your own rather than through an employer. They’re one of the most popular retirement accounts in the country. Americans held approximately $13.6 trillion in IRA assets at the end of 2023, according to the Investment Company Institute.³
Here’s how a traditional IRA generally works:
- Your contributions may be tax-deductible, depending on your income and whether you participate in a workplace retirement plan
- Investments grow tax-deferred
- Withdrawals in retirement are generally taxed as ordinary income
- Required minimum distributions (RMDs) begin at age 73⁴
Roth IRA: tax-free income later
A Roth IRA is another type of IRA, but it has the opposite tax treatment of a traditional IRA.
Instead of receiving a tax deduction today, you contribute money you've already paid taxes on. In exchange, qualified withdrawals in retirement are generally tax-free as long as you’re at least age 59 ½ and have had the account open for at least five years. These tax-advantaged withdrawals include investment earnings.
Here’s how a Roth IRA generally works:
- You make contributions with after-tax dollars.
- Investments grow tax-free.
- Withdrawals in retirement are tax-free.
- There are no RMDs during the original owner’s lifetime.⁴
- Income limits determine who can contribute directly.
Roth IRA vs. Traditional IRA
The biggest difference between a Roth IRA and a traditional IRA is when you pay taxes.
Traditional vs. Roth IRA Comparison Chart
|
Potential tax deduction today |
No tax deduction today |
|
Tax-deferred growth |
Tax-free growth |
|
Withdrawals generally taxed in retirement |
Qualified withdrawals generally tax-free in retirement* |
|
RMDs begin at age 73 |
No RMDs during the owner’s lifetime |
*Qualified Roth withdrawals generally require the account owner to be at least age 59½ and to have held the account for at least five years.
How retirement accounts work together
One of the most common retirement planning questions is: Should I contribute to a 401(k) or a Roth IRA? For many people, the answer could be both.
For example, someone might:
- Contribute enough to their 401(k) to receive the full employer match
- Contribute to a Roth IRA for future tax-free withdrawals
- Continue saving additional amounts in a traditional 401(k)
This approach creates tax diversification, which means having retirement income available from accounts that are taxed differently.
Consider a worker named Sarah. She contributes enough to her 401(k) to receive the full employer match and also saves in a Roth IRA. By retirement, she has money in both tax-deferred and tax-free accounts.
If Sarah needs additional income one year, she can potentially choose where to withdraw money from based on her tax situation. She may take income from her 401(k), her Roth IRA, or a combination of both.
The right mix of retirement account types depends on factors such as:
- Current income
- Expected retirement income
- Tax projections
- Employer benefits
- Retirement timeline
- Long-term financial goals
A financial professional can help evaluate how different account types work together and build a strategy that’s aligned with your overall financial plan rather than focusing on any one account in isolation.
Insurance and retirement accounts: the complete picture
Retirement accounts can help you accumulate assets, but building wealth is only part of the retirement planning equation.
For instance, a retirement account may not be able to replace your income if you can’t work during your peak earning years. It can’t provide a death benefit to loved ones if you die unexpectedly. And by itself, it doesn't guarantee that you’ll have income that lasts throughout retirement.
Retirement planning is often strongest when insurance protection and investment growth work together. For example:
- Life insurance can help protect your family’s financial future if you die unexpectedly. For some households, it can also serve as part of a broader retirement strategy by helping protect assets, provide liquidity, or support legacy goals.
- Disability insurance can help protect the income that funds your retirement accounts. If an illness or injury prevents you from working, disability coverage can help replace a portion of lost income and reduce the risk of falling behind on retirement savings goals.
- Annuities can help address a different challenge: turning retirement savings into income. Depending on the type of annuity, they may provide a stream of guaranteed income that can help cover essential expenses in retirement.
How budgeting can help you max out contribution limits
In real life, your retirement savings will often compete with other financial priorities such as housing costs, debt repayment, childcare, healthcare, and everyday expenses. For these reasons, maxing out your retirement contributions each year often requires intentional budgeting rather than simply saving whatever is left over at the end of the month.
If you’d like to contribute the maximum amount, creating a retirement savings strategy can help you work toward that goal. This could include:
- Increasing your 401(k) contributions enough to maximize the employer match
- Directing part of an annual raise toward retirement savings
- Automatically increasing contributions by 1% to 2% each year
Frequently asked questions
A 401(k) is a retirement plan offered through your employer that you typically fund with pre-tax dollars taken directly out of your paycheck. A Roth IRA is an individual account you open yourself. You fund it with after-tax dollars after you get paid, and qualified withdrawals are generally tax-free.
Both 401(k)s and 403(b)s are workplace retirement plans, but they’re usually offered by different types of employers. You’ll typically find 401(k) plans at for-profit employers and 403(b) plans through schools, hospitals, religious organizations, and certain nonprofits.
Yes, you can contribute to both a 401(k) and a Roth IRA at the same time, as long as your modified adjusted gross income (MAGI) doesn’t exceed the qualification limits for a Roth.
If you have access to a workplace retirement plan with an employer match, it’s generally recommended to contribute enough to receive the full match first. After that, the right strategy depends on your income, tax situation, retirement timeline, and financial goals.
For 2026, you can generally contribute $23,500 to a 401(k) and 403(b), and $7,500 to an IRA. If you’re aged 50 and up, your limits are higher due to catch-up contributions. You can invest up to $32,500 for a 401(k) and 403(b), and $8,600 for a traditional and Roth IRA.⁵
