Best Retirement Plans for February 2025

Whether you're a young professional just starting out, a seasoned worker looking to maximize your savings, or a self-employed individual seeking tailored options, choosing the right retirement plan is crucial for building a solid financial foundation.

In this guide, we’ll explore several retirement plans available today, breaking down their benefits, limitations and the types of people who may qualify for each.

The 11 best retirement plans

1. 401(k)

2. 403(b)

3. 457(b)

4. Thrift Savings Plan

5. Individual retirement accounts (IRAs)

6. Solo 401(k)

7. SEP IRA

8. SIMPLE IRA

9. Pension plan

10. Annuities

11. Cash balance plan

Employer-sponsored retirement plans

An employer-sponsored retirement plan is a workplace benefit offered by employers to help employees save for retirement. Employees contribute to their retirement plan through payroll deductions and choose investments based on what’s available from the plan provider. Many employers also offer a matching contribution, providing an extra incentive to save for retirement.

Key benefits of employer-sponsored retirement plans include higher contribution limits compared with other types of retirement plans, as well as tax advantages. Drawbacks could include limited plan and investment options (depending on the provider), varying management and administrative fees, and a potential vesting schedule set by the employer.

401(k)

A 401(k) is a retirement savings plan typically offered by employers in the private sector. There are two types of 401(k)s: traditional and Roth. With a traditional 401(k), contributions are made with pretax dollars, reducing your taxable income for the year, but you’ll pay taxes on distributions in retirement.

Some — but not all — employers also offer a Roth 401(k), which accepts after-tax contributions. Although contributing to a Roth won’t lower your taxable income for the year, the distributions in retirement are tax-free.

Key features:

• Employers may offer a match based on employer contributions.

• Tax-deferred growth or tax-free withdrawals, depending on the type of plan. 

• Roth 401(k)s are not subject to required minimum distributions (RMDs).

• Contribution limits: $23,500 ($31,000 for people 50-plus) in 2025. People ages 60 to 63 can contribute up to $34,750.

» Learn more about 401(k) contribution limits.

403(b)

A 403(b), also known as a tax-sheltered annuity (TSA), is a tax-advantaged retirement savings plan designed for employees of public schools, nonprofit organizations and certain religious institutions. It functions similarly to a 401(k) plan but is tailored specifically for workers in these sectors.

What to keep in mind: Investments may sometimes be limited to high-fee mutual funds and/or variable annuity multi-year contracts.

Key features:

• Contributions can be pretax or, if the employer offers a Roth, after-tax.

• Optional 15-year rule allows catch-up contributions for qualified employees with 15 years of service to contribute $3,000 each year for five years, up to a $15,000 lifetime max.

• 403(b)s are subject to a “universal availability rule,” which means that if one employee can defer their salary into a 403(b), all other employees can as well. Employers can exclude some employees, such as those who work part-time, participate in other employer-sponsored plans or who contribute less than $200 a year. 

• Contribution limits: $23,500 ($31,000 for people 50-plus) in 2025. People ages 60 to 63 can contribute up to $34,750.

» Compare the differences between 403(b) plans and IRAs.

457(b)

A 457(b) plan is a tax-advantaged retirement savings plan primarily available to employees of state and local governments and certain tax-exempt organizations. It shares the same high annual contribution limits as the 401(k) and 403(b).

If an employer offers a 403(b) or 401(k) in addition to the 457(b), workers might be eligible to contribute to both. However, an employer match is rare and, if offered, is included in the annual contribution limit. Contractors are eligible for a 457(b).

Key features:

• Special catch-up contribution, if allowed by the plan, during the three years prior to retirement if the account holder meets certain requirements. 

• No 10% early withdrawal penalty for withdrawals made before age 59 ½ if the worker leaves their job, but income taxes will still apply. 

• Hardship withdrawals may be permitted for unforeseeable emergencies, such as illness or accident.   

• Contribution limits: $23,500 ($31,000 for people 50-plus) in 2025. People ages 60 to 63 can contribute up to $34,750.

Thrift Savings Plan (TSP)

A Thrift Savings Plan is a retirement plan designed for federal government employees and members of uniformed services, such as the military. Fees are low, making it a cost-effective plan for federal workers, and there is a match for the first 5% of pay contributed.

Key features:

• Roth and traditional versions available.

• Three-year vesting schedule for most employees. 

• Limited selection of investment options.

• Contribution limits: $23,500 ($31,000 for people 50-plus) in 2025. People ages 60 to 63 can contribute up to $34,750.

Individual retirement accounts (IRAs)

The IRA is one of the most common types of retirement plans. Any individual can set up an IRA at a financial institution, such as a bank or brokerage firm, to hold investments — stocks, mutual funds, bonds and cash — earmarked for retirement.

A major advantage of IRAs is that they put you in the driver’s seat. You choose the bank or brokerage and make all the investment decisions, or hire someone to make them for you. IRAs usually provide a much wider range of investment choices than workplace retirement plans do, since you get to choose where you want to open your IRA.

A consideration of the IRA vs. 401(k) debate is that IRAs have lower annual contribution limits than most workplace retirement accounts, meaning there is a lower amount that you can set aside every year. However, note that if you qualify, you can contribute to both a 401(k) and an IRA.

You can also have more than one type of IRA, allowing you to choose between different tax strategies. Below, we’ll review two popular types: the traditional and the Roth IRA.

Traditional IRA

In a traditional IRA, growth is tax-deferred, and contributions can be tax-deductible. This means you may be able to deduct all or some of your annual contribution when you file taxes the following year. When it comes to taking distributions in retirement, you’ll pay income taxes on the amounts you withdraw at your ordinary income tax rate.

Key features:

• There are no income limits to open an IRA.

• If you or your spouse have an employer-sponsored retirement plan, your ability to deduct traditional IRA contributions may be limited or not allowed.

• You will need to take RMDs once you hit age 73.

• Contribution limits: $7,000 for those under 50 and $8,000 for those 50 and older. You can contribute to an IRA for 2024 through the April 2025 tax filing deadline. 

» Learn more about traditional IRA income limits

Roth IRA

In a Roth IRA, contributions are made with after-tax money. While there isn’t a tax break up front for adding money to a Roth IRA account, there are no taxes on investment growth and withdrawals in retirement. Eligibility and the amount you can contribute to a Roth IRA depends on your modified annual gross income (MAGI) and your filing status.

Key features: 

• Contributions can be withdrawn at any time without taxes or an early withdrawal penalty.

• No RMDs required during the original account holder’s lifetime. 

• If you don’t qualify to directly contribute to a Roth IRA, consider a backdoor Roth IRA strategy. 

• Contribution limits: Individuals under the Roth IRA income limit for their filing status can make a full contribution of $7,000 for those under 50 and $8,000 for those 50 and older. At higher incomes, the contribution is phased out. You can contribute to an IRA for 2024 through the April 2025 tax filing deadline. 

» What to know about Roth IRA contribution and income limits

Retirement plans for the self-employed and small business owners

If you work at or run a small company or are self-employed, you might have a different set of retirement plans at your disposal. Some are IRA-based, while others are essentially single-serving-sized 401(k) plans. And then there are profit-sharing plans, which are a type of defined contribution plan.

Many retirement plans for the self-employed or small-business owners offer more investment choices than most employer plans and may offer higher contribution limits than most employer plans and IRAs. Self-employed individuals may also be able to set up a profit-sharing contribution as an employer and elective deferral — with catch-up — as the employee, increasing the amount of money set aside for retirement (though there is a profit-sharing cap of about 20% of net profits because of Federal Insurance Contribution Act taxes due on net profits).

There are also a few cons: Employer contributions can be discretionary, putting more responsibility on employees and plan participants to contribute to the account towards retirement. There may also be narrower parameters for early and hardship withdrawals compared to traditional IRAs and employer-sponsored retirement plans.

Solo 401(k)

Designed for self-employed individuals or business owners without employees, a Solo 401(k) offers high contribution limits and tax-deferred or tax-free growth. It allows both employee and employer contributions, maximizing savings potential.

Key features:

• Roth and traditional options available.

• No age or income restrictions to open a solo 401(k) plan.

• Spouses can be covered by a solo 401(k).

Contribution limits: 

• As an employee, you can contribute up to $23,500 ($31,000 if age 50 and older) to a solo 401(k). If you're between ages 60 and 63, you get a larger catch-up contribution. 

• As an employer, you can make an extra profit-sharing contribution of up to 25% of your net income or net self-employment income, with a limit of up to $350,000. 

» Learn more about solo 401(k) plans

Simplified Employee Pension (SEP) IRA

A SEP IRA is a type of individual retirement plan for business owners and self-employed individuals with no or few employees. Only employers can contribute to a SEP IRA, and the contributions are tax deductible for the business.

Key features:

• Employer-funded contributions only, though employees own and control their own accounts.

• No catch-up contributions for those age 50 or older. 

• Employees (other than yourself) must meet eligibility requirements to have contributions made to their SEP IRA.

• Contribution limit: Lesser of 25% of compensation or $66,000 in 2025.

» Learn more about SEP IRAs

Savings Incentive Match Plan for Employees (SIMPLE IRA)

SIMPLE IRAs are ideal for small businesses with 100 or fewer employees. In contrast with a SEP IRA, employer contributions are required, and employees can also contribute by making payroll contributions.

Key features:

• Employer contributions are mandatory. 

• Employer contributions vest immediately for employees. 

• Strict rules for rollovers to another IRA or employer-sponsored retirement plan. 

Contribution limits:

• In 2024, the contribution limit is $16,000, plus a catch-up contribution of $3,500. Some participants may be able to contribute $17,600 if their employer has less than 25 employees. Employees in a company that has 26 to 100 employees may contribute this higher limit if their employers provide a 4% matching contribution or 3% employer contribution. 

• In 2025, the limit rises to $16,500, plus a catch-up contribution of $3,500. The same higher contribution limit applies depending on company size and employer match. Employees age 60 to 63 may also add an extra catch-up contribution of $5,250. 

» Learn more about SIMPLE IRAs

Pension plans

Pension plans are a type of defined benefit plan sponsored by employers that offer a fixed income in retirement. The amount often depends on the employee’s salary and years of service.

Key features:

• Employees contribute a set amount of their paycheck, which is then matched by their employer (match depends on pension documents or employee contract.)

• Employees are responsible for investing contributions for their retirement and may cash out or move pensions depending on plan rules.

• Pensions may not be protected against inflation, and there is a possibility of outliving a pension.

• Contribution limit: Contributions and benefits are calculated by an actuary. According to the IRS, the annual benefit can’t exceed the lesser of 100% of the participant’s average compensation for their three highest consecutive calendar years, or $280,000 for 2025^[0]

  IRS. Retirement topics - Defined benefit plan benefit limits.

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Annuities

Annuities are insurance contracts that provide guaranteed income for a set period or for life. They are funded with a lump sum or regular payments and are ideal for those seeking a steady income stream in retirement.

Key features:

• Customizable options (fixed, variable, or indexed annuities).

• Optional death benefits in some plans could allow beneficiaries to receive any unpaid funds.

• Limited or no say in investment decisions.

» Making the comparison between an annuity vs. IRA

Cash balance plans

A hybrid between a pension and a 401(k), cash balance plans offer high contribution limits based on age and income. In a cash balance plan, the employer credits a participant’s account every year with a percentage of their salary (called a pay credit) and an interest credit, which could be tied to a fixed rate or index. When leaving or retiring from the company, the employee could choose to take the account balance as a lump sum distribution (which could be rolled into an IRA or another benefit plan) or an annuity.

Key features:

• Employers carry investment risks, rather than the employee. 

• Employees can choose to receive benefits as a lump sum or annuity that pays out income based on the account balance.

• Benefits of a cash balance plan are typically protected by federal insurance through the Pension Benefit Guaranty Corporation.

The bottom line

So, what's the best retirement plan out there today? Well, it depends on how you want to invest and what's available to you. If you have access to a retirement plan at work, such as a 401(k), that might be the first place to start investing for retirement. That's especially true if you receive a matching contribution from your employer.

If you've contributed enough to receive a match, or you don't have a retirement plan at work, consider turning to an IRA. Compare the pros and cons of both the Roth and traditional IRA to help decide which one suits your needs best. And once you've maxed out the annual contribution for the IRA and you still want to continue saving for retirement, you can turn back to your 401(k).

If you're self-employed or own a small business, using one of the retirement accounts designed specifically for you, including a SEP IRA, solo 401(k), SIMPLE IRA and profit-sharing plans, can help you maximize your retirement savings. These can be a little bit more complicated, so reaching out to a financial advisor to make an individualized plan can be useful.