Retirement accounts
There are several different ways to break apart the types of retirement accounts.
Individual accounts are those, surprisingly enough, by individuals. The primary types here would be Roth IRAs and Traditional IRAs.
Employer-sponsored plans are the other big group, with far more types of plans.
Individual retirement accounts (IRAs)
Any individual with earned income can contribute to an IRA, Roth, or Traditional, even if they are part of another employer/employee plan. There is no minimum age. One of the useful, real-world things to remember is that the actual contribution does not have to come from their income. If there is a 16-year-old child who has a part-time job making $500 a month or something tiny. If that $6,000 annually is reported to the IRS, that means the parents, or anyone else, could gift the child $6,000 to put in the IRA.
In 2026, the maximum contribution is $7,500 to either or both, it is a combined limit. There is now, again as of 2026, a $1,100 catchup after the age of 50, so anyone 50 or older could contribute $8,600. Again, the limit is split: $7,500 into a Roth, $7,500 into a Traditional, $4,000 into a Roth, $3,500 into a Traditional, or any other combination, but the total combined cannot be more than $7,500 in 2026.
Contributions can be made up to April 15 of the following year for the current year. If someone wanted to make a contribution for 2026, they could do it from January 1, 2026, all the way to April 15, 2027.
Weirder things about IRAs
Gold and silver can be in IRAs. This is a weird one, and the reasons for why you’d want physical gold and silver, investments that do not generate money until sold so don’t benefit from deferral, in an IRA aren’t important, but we need to know they can be.
Municipal bonds, although not prohibited from being in an IRA, are strongly advised against. Similar to gold, they don’t have a real benefit, and eat up the limited annual contribution.
Once every rolling 12-month period, the IRA can be use a rollover or a transfer to move from one IRA to another IRA tax free. A rollover is where the investor gets the money and has 60 days to deposit in the new account. This is far riskier than the alternative, a transfer where one trustee transfers it to another, the client can’t deposit the money, and there is potential for severe tax penalties if they don’t handle it correctly.
Employer-sponsored plans
As the name suggests, these are plans sponsored by employers for their employees. These can be thought of as employer/employee plans. Many benefit from very nice IRS tax benefits, but those will have to follow the Employee Retirement Income Security Act, or ERISA. Plans that follow ERISA are qualified plans, those that do not follow the ERISA guidelines are nonqualified plans.
Qualified plans are tax-deductible; the investor is not taxed on the money they contribute, and it is deducted from their income. Qualified plans are also tax-deferred; the investor doesn’t pay any taxes that might be due each year, instead they are deferred, pushed into the future.
The ERISA qualification standards include rules for participation, vesting, funding, tax treatment, and the administration of the specific employer/employee plan.
Participation
Every employee who meets the minimum requirements must be able to participate; there can be no discrimination. For full-time employees, anyone over the age of 21 years old has worked at least 1,000 hours during the previous year must be able to contribute. For part-time employees, anyone over the age of 21 years old, who has worked for the past 2 years (plans beginning January 1, 2025) or 3 years (plans beginning January 1, 2021) and at least 500 hours in each of those 2 or 3 year periods.
Vesting
Vesting in the idea of how much of the money that is in the account, the employee can take if they withdraw from the plan before the retirement date. The employee is always 100% vested in the money they have contributed, but how much of the employer’s money, how much of the company’s money, does the employee keep if they leave? There are IRS-approved vesting schedules, generally either the 3-year cliff, 100% after 3 years, or a more graded vesting of 2-6 years, with 20% per year after 2 years.
Funding
All ERISA-qualified plans must be funded, and that money must be kept separate and not commingled with the company’s other money. The money can be kept at a bank, a trustee, or a similar type of company.
The funding will either come from the plan being a defined-benefit plan (basically pensions), or a defined-contribution plan. Defined benefit plans, define the benefit. As an example; 80% of the average of the last 5-years of employment salary. The company then has the responsibility to make the payments required to meet that benefit. Defined contribution on the other hand, has a defined contribution, usually defined and made primarily by the employee, but also often matched by the employer. There are some that only have employer contributions.
Tax treatment
As mentioned earlier, these are qualified plans, meaning they are tax-deductible, and tax-deferred. The money is not taxed the year they are contributed, and not taxed each year on potential taxable events.
Administration
Each plan must have a fiduciary, some advisor with a fiduciary duty to the plan, not the company. Fiduciaries may not participate in any transactions that put their interests ahead of the plan’s interests. Certain transactions are simply prohibited in qualified plans. These transactions include exchanging or leasing between the plan and someone in control, furnishing goods, services, or facilities between the plan and a person in control, or lending money or credit between the plan and a person in control.
Common qualified plans
401(k)
A very common type of corporate retirement account. The standard plan when we think about plans with vesting. The employee defines their contribution, the employer may or may not match, and that money is put tax-deductibly into the account. The growth is then tax deferred, but the risks are on the employee in making sure they pick appropriate investments in the 401k plan.
403(b)
A very common type of plan for non-profits. Primarily used for schools, hospitals, churches, and other 501c3s.
Profit-sharing
Profit-sharing are the only qualified plan that does not actually require contributions; if there are no profits, there is no sharing, and no contribution. Profit-sharing plans allow the company to share in the profits of the company, provided of course in that year there are profits.
Employee Stock Ownership Plan (ESOP)
ESOPs invest primarily in the employer’s stock. There can be at a discount to encourage investors, effectively functioning similarly to a 401k match; if the company gives you extra money, or they effectively cover the difference on a lower price, similar benefit to the investor.
Non-qualified retirement plans
Much less dealt with in the real world, for most people, but in certain small company markets, they are very useful. These are the plans that do not have to follow ERISA rules, and are often used specifically to discriminate for the benefit of higher income, directors and C-suite persons. These can also be thought of as golden handcuffs. We’ve likely heard of the term “golden parachute”, where a CEO of a dying company leaves with a very large check; they jump out of the burning building, with a golden parachute. These non-qualified plans, specifically deferred compensation, can be seen as golden handcuffs. Don’t misunderstand, they may be handcutting the employee, but they are very shiny, and very valuable sometimes. The basic idea is giving a specific employee a large benefit, but only if they retire at the company. They can’t leave before retirement, they have to work at the company for the next 20, 30, 40 years or whatever, and then they get all this extra money that has been set aside for them. If they leave early, for another company, they lose everything in the non-qualified plan. That is the golden handcuffs.
Deferred compensation, as mentioned, is the most common of these. The compensation is deferred until retirement. It is kept in a separate account of the firm, and should the company go bankrupt or have legal challenges, that account is property of the firm and could be seized.
There have historically been other non-qualified plans, including payroll deduction; a plan that allows certain employees to deduct a certain amount of their paycheck to pay for insurance, investments, or many other things. In the modern world, deferred compensation is the most common.