How to Save for Retirement

Whether you're a traditional worker or self-employed, a great way to save for retirement is in a retirement savings account, such as an IRA or 401(k).

Unlike regular investment accounts, these accounts give a tax break on savings, either upfront or down the road when withdrawing in retirement. And in between, your investments are shielded from the IRS and grow without being taxed.

💡Saving for retirement: How much do you need?

Most experts recommend saving at least 10% to 15% of your pretax income when figuring out how much to save for retirement. That can be a good starting point before factoring in other needs to arrive at a more personalized number. Other details to consider include current age, pretax income and current savings, and at which age you’d like to retire.

» Plug those numbers into NerdWallet’s free retirement calculator to project your monthly income in retirement.

How to save for retirement in three steps

Depending on your employment status, you may have access to different types of retirement accounts.

Retirement investment account types

Here are the must-knows about the main types of investment accounts for retirement savings — 401(k)s (which come in regular and Roth versions), the Roth IRA and the traditional IRA — starting with the pros and cons of each:

	401(k)	Traditional IRA	Roth IRA
Contribution limit	$23,000 in 2024 and $23,500 in 2025. (In 2024 and 2025, people age 50 and older can contribute an extra $7,500 as a catch-up contribution. In 2025, due to the Secure 2.0 Act, those ages 60 to 63 get a higher catch-up contribution of $11,250.)	The combined contribution limit for all of your traditional and Roth IRAs is $7,000 in 2024 and 2025 ($8,000 if age 50 and older).
Employer match	Many employers offer a match, typically around 3%.	None.	None.
Tax treatment	Contributions lower taxable income in the year they are made. Distributions in retirement are taxed as ordinary income, unless a Roth 401(k).	If deductible, contributions reduce taxable income in the year they are made. Distributions in retirement are taxed as ordinary income.	No immediate tax benefit. Qualified withdrawals in retirement are tax-free.
Eligibility	Eligibility is not limited by income.	Deduction phased out at higher incomes if you or your spouse are covered by a workplace retirement account.	Ability to contribute is phased out at higher incomes. Contributions can be withdrawn at any time.
Investment availability	Funds in a 401(k) may be less expensive than identical funds purchased outside of 401(k). No control over plan and investment costs. Limited investment selection.	Large investment selection.	Large investment selection.
Required minimum distributions	Required minimum distributions beginning at age 73 as of 2023, and will increase to 75 in 2033.	Required minimum distributions beginning at age 73 as of 2023, and will increase to 75 in 2033.	No required minimum distributions in retirement.

If you're traditionally employed, consider starting with these steps.

1. Prioritize a 401(k) first.

There are a lot of perks to having access to an employer-sponsored retirement plan. A few of the biggies:

It makes it easy to save on autopilot: Money is taken out of your paycheck.
You may get paid to save: Many employers match a portion of employee contributions.
It’s one of the biggest tax havens: The 401(k) allows individuals to save more than three times as much as in an IRA.
Investment gains are tax-deferred: As long as the money remains in the plan, you owe nothing as it grows.

The downsides:

Investment choices are limited: Investments available through a 401(k) are picked by the plan administrator and the selection is typically small.
Fees can erode your returns: In addition to investment expenses (which are charged by the investments themselves, not the 401(k) plan), there may be administrative fees charged by the company that manages the plan.

The conclusion: Consider investing up to the match and pay attention to fees. Even if it’s a great plan, the money you contribute still lowers your taxable income for the year and you get tax-deferred growth on investment gains.

Once you leave your job, you might want to roll over the money into an IRA to take control. Here’s how to decide if that’s the right move and how to do a 401(k) rollover.

2. Contribute to an IRA.

There are other types of IRAs, but the two most common are the Roth and traditional IRA. The main difference between them is how taxes work:

Traditional IRA: Depending on your income and whether you have access to a workplace retirement plan, the money you contribute may be tax-deductible. You fund the account with pretax dollars, and pay income taxes on money you withdraw from the account in retirement. Learn more in our guide to traditional IRA income and contribution limits.
Roth IRA: Contributions are not deductible — the account is funded with post-tax dollars. That means you get no upfront tax break as you do with the traditional IRA. The payoff comes later: Qualified withdrawals in retirement are not taxed at all.

» More on the differences between the Roth IRA vs. traditional IRA

For most people, choosing between a traditional or Roth IRA starts with one question: When you retire and start drawing money from your investment accounts, do you anticipate that your tax rate will be higher than it is right now?

Not sure how to answer that question? That’s OK: Most people aren’t. For this reason, and the pluses outlined in the table above, you may want to lean toward the Roth.

If you believe your taxes will be lower in retirement than they are right now, taking the upfront deduction offered by a traditional IRA and pushing off taxes until later might be a solid choice.

Still undecided? You can contribute to both types if you’d like, as long as your total contribution for the year doesn’t exceed the annual limit.

Note: Some employers also offer a Roth version of the 401(k). If yours is one of them, follow this same line of thinking to decide whether you should contribute to that or the standard 401(k).

» Ready to get started? Learn how and where to open an IRA.

A word about IRA eligibility

Both traditional and Roth IRAs have restrictions in certain circumstances, which means that the choice between the two may be out of your hands. For example, if you have a 401(k), you may not be able to deduct traditional IRA contributions at certain incomes.

If you earn too much, you may not be eligible to contribute to a Roth IRA. For a full breakdown of Roth limits and phaseouts, read our guide to Roth IRA income and contribution limits.

3. Return to a 401(k), if you can.

If you still have funds left over after maxing out your IRAs, consider continuing 401(k) contributions. The maximum you can contribute to your 401(k) plan is $23,000 in 2024 and $23,500 in 2025. (In 2024 and 2025, people age 50 and older can contribute an extra $7,500 as a catch-up contribution. In 2025, due to the Secure 2.0 Act, those ages 60 to 63 get a higher catch-up contribution of $11,250.)

Saving for retirement as a nontraditional worker

If you're self-employed or do non-traditional work such as freelancing or temporary work, you can explore specific self-employed retirement plans.

Some examples of self-employed retirement plans to consider include:

Solo 401(k): Ideal for a self-employed person or business owner with no employees.
SEP IRA: For self-employed people or business owners with few or no employees.
SIMPLE IRA: Suitable if you have a larger business, but fewer than 100 employees.

» Learn more about self-employed retirement plans

The bottom line

Saving for retirement can feel daunting, but breaking it down into manageable steps can help. Understand what account options are available to you, how much you can contribute regularly, and what you'd like to invest in.

Once you've got that figured out, time, compounding interest, and careful investment choices can help you towards your retirement goals.