Types of retirement accounts

Types of retirement accounts

You should have an understanding of what kind of account you have. Find out which type is the one offered by your employer, and learn about how it works, so you know what it can do for you, and what it can't, in terms of getting you to your retirement goals.

	401(k)	403(b)	457	Roth 401(k) or 403(b)	401(a)
Available To	Primarily employees of private companies	Employees of public education institutions, non-profits and ministers	Employees of state and local governments, tax-exempt governments and tax-exempt employers	Employees of companies that offer the Roth 401(k)	Employees of companies that offer 401(a)s, also called "money purchase plans"
How It Works	Contributions are made pre-tax from paychecks.	Contributions are made pre-tax from paychecks.	Contributions are made pre-tax from paychecks.	Contributions are made after tax from paychecks.	The company contributes to the plan on its own or mandates that all employees deduct a set percentage from their paychecks as a contribution.
Contribution Limits	For 2012, $17,000. If you are 50 or older, you can contribute an extra $5,500 in a "catch-up" contribution.	For 2012: $17,000. Limits may differ for ministers, church employees and those with 15 years of service with an educational organization, hospital, health and welfare service agency, church, or association of churches. (Find out more from your employer or on the IRS web site.)	For 2012: $17,000. If you have a 401(k) or 403(b) in addition to your 457, you can contribute up to the maximum toward both accounts. If you're 50 or older, you can also contribute the additional $5,500 catch-up contribution toward each plan.	For 2012: $17,000. If you are 50 or older, you can contribute an extra $5,500 in a "catch-up" contribution.	N/A. A 401(a) does not allow the employee to choose the amount he or she contributes to the plan.
Tax Implications	Because contributions are made pre-tax, you’ll pay taxes when you take the money out, not when you put the money in. Also, they'll lower your taxable income now, so the more you contribute to your 401(k), the less income you'll be taxed on.	Same as 401(k).	Same as 401(k).	The Roth 401(k) is desirable for taxpayers who will pay less on their taxes now than they will on future withdrawals. This includes people who are in a lower tax bracket than they will be during retirement. Contributing with post-tax dollars (i.e. paying taxes now) could also be beneficial if U.S. tax rates go up.	Voluntary contributions made by employees are done on an after-tax basis. Mandatory contributions required by the employer are done on a pre-tax basis.
Matching?	Some employers will contribute money to your retirement account if you do, “matching” your contribution. You should always contribute the minimum necessary to get the match--it's free money!	Same as 401(k)s.	Employers do not match 457 plans.	Same as 401(k)s, except that an employer's match is contributed pre-tax and therefore held separately and taxed as ordinary income upon withdrawal.	Same as 401(k)s.
Early Withdrawals	If you withdraw money from your 401(k) before age 59 1/2, you will pay taxes on it and be fined a 10% penalty.	Same as 401(k).	No penalty for early withdrawals, though they will be subject to income tax.	Early withdrawals (before 59 1/2) are subject to a 10% penalty, but only for the amount considered earnings.	Early withdrawals (before 59 1/2) are subject to a 10% penalty.