Retirement Savings Options: Which Account Is Right for You?

Peter Hafner |
Categories
Retirement
Investing

Retirement planning looks very different today than it did for previous generations.

For many people, retirement is no longer about relying on one pension or one source of income. Instead, it often involves a mix of retirement accounts, tax considerations, and long-term planning decisions.

The good news?

There are more retirement savings options available than ever before.

The challenge is understanding how they work and which retirement accounts may fit your goals, employment situation, income, and future plans.

Retirement itself is also a relatively modern idea.

For much of history, people worked as long as they physically could and often relied on family or community support later in life. Over time, pensions emerged, Social Security was established in 1935, and retirement gradually became something people could plan for decades in advance.

Today, Social Security may help supplement retirement income, but for many people, additional savings will likely play an important role.

Let’s look at several retirement savings options available outside employer-sponsored plans such as 401(k)s and 403(b)s.

Traditional IRA: A Common Retirement Starting Point

For many people, a Traditional IRA is one of the first retirement accounts they encounter.

A Traditional Individual Retirement Account is opened and owned by an individual rather than an employer. Anyone with earned income may contribute.

If eligible, contributions may be tax deductible, and investments grow tax deferred until withdrawals begin.

2026 contribution limits

  • Under age 50: $7,500
  • Age 50 and older: $8,600

Why some people choose it

  • Potential tax deduction
  • Broad investment flexibility
  • Ability to name beneficiaries

Things to know

  • Withdrawals are generally taxed
  • Early withdrawal penalties may apply
  • Required minimum distributions (RMDs) apply
  • Deductibility rules may become more complex if you or a spouse participates in a workplace retirement plan

For many households, a Traditional IRA can serve as a solid retirement savings foundation.

Roth IRA: Paying Taxes Now for Tax-Free Withdrawals Later

When comparing an IRA vs Roth IRA, taxes are often the biggest difference.

Unlike a Traditional IRA, Roth IRA contributions are made with after-tax dollars.

Why does that matter?

Qualified withdrawals in retirement are not subject to federal income taxes, which may appeal to individuals looking for tax-free retirement income later.

Roth IRAs also do not require required minimum distributions, offering added flexibility in retirement.

Things to know

  • Contributions are made with after-tax dollars
  • No upfront tax deduction
  • Eligibility requirements apply

For some people, a Roth IRA becomes an important piece of long-term retirement planning.

SEP IRA: A Retirement Plan for Business Owners

Retirement planning can look different when you own a business.

A SEP IRA, short for Simplified Employee Pension Individual Retirement Account, may be an option for self-employed individuals, independent contractors, and businesses both large and small.

Unlike a Traditional IRA, employees do not contribute to a SEP IRA. Instead, the employer makes contributions for both themselves and employees.

One important rule: employees must receive the same percentage contribution as the owner.

For example, if the owner contributes 15% of compensation, employees receive 15% as well.

A SEP IRA may also offer flexibility, allowing contribution amounts to vary from year to year.

2026 contribution limits

  • Up to 25% of employee compensation
  • Maximum contribution of $72,000
  • Compensation calculations capped at $360,000

For self-employed owners, net earnings must first be reduced by both the retirement contribution itself and self-employment tax, resulting in an effective contribution rate of about 20% of net earnings.

Why some business owners choose it

  • Higher contribution limits than a Traditional IRA
  • Tax-deductible contributions
  • Broad investment flexibility
  • Easy setup and administration
  • Immediate vesting

Things to know

  • Withdrawals are taxed
  • Roth contributions are unavailable
  • Employees cannot contribute
  • RMDs apply

For some business owners, a SEP IRA offers a balance between simplicity and retirement savings potential.

Solo 401(k): Retirement Savings for Self-Employed Business Owners

Business owners without employees may have another option: the solo 401(k).

Designed for business owners with no employees other than a spouse, a solo 401(k) allows contributions as both the employee and employer.

2026 contribution limits

  • Up to $24,500 as the employee
  • Additional employer contributions up to 25% of compensation
  • Total contributions up to $72,000 for individuals under age 50
  • Additional catch-up contributions available for those age 50 and older

For some business owners, this structure can create meaningful retirement savings opportunities.

Solo 401(k)s may also offer both Traditional and Roth contribution options, loan features, beneficiary options, and flexibility in contribution amounts from year to year.

Things to know

  • More paperwork and recordkeeping may be required
  • Loan rules can be restrictive
  • RMDs apply to non-Roth balances
  • Generally unavailable if the business has employees

At lower income levels, contribution opportunities may be higher compared to a SEP IRA. At higher income levels, some business owners may prefer the simplicity of a SEP IRA.

Health Savings Account (HSA): Another Way to Save for Retirement

A Health Savings Account, or HSA, may not immediately come to mind when discussing retirement accounts, but it can become another valuable savings tool.

If you participate in a high-deductible healthcare plan with an HSA option, contributions may help build savings for future healthcare expenses.

2026 contribution limits

  • Individual coverage: $4,400
  • Family coverage: $8,750
  • Additional $1,000 catch-up contribution for individuals age 55 and older

One reason HSAs stand out is their tax treatment.

Contributions may be tax deductible, growth is tax deferred, and withdrawals used for qualified medical expenses are tax free.

Unlike an FSA, there is no “use it or lose it” rule.

Beginning at age 65, non-medical withdrawals become penalty free, though ordinary income taxes still apply. HSA funds may also be used for Medicare premiums, excluding Medigap coverage.

Things to know

  • Requires a high-deductible healthcare plan
  • Recordkeeping matters
  • Non-qualified withdrawals before age 65 may result in taxes and a 20% penalty

For healthy individuals comfortable with a higher deductible, an HSA may become another piece of a retirement savings strategy.

Which Retirement Savings Option Is Right for You?

There is no one-size-fits-all approach to retirement planning.

For some people, a Traditional IRA may make sense. Others may prefer the long-term tax benefits of a Roth IRA. Business owners may find themselves comparing a SEP IRA vs solo 401(k). And for some households, an HSA may quietly become another useful planning tool.

The real question is not which retirement account is “best.”

It is which retirement savings options align with your goals, income, employment situation, and long-term plans.

If you have questions about your retirement savings options, we are always happy to walk through the conversation with you. As with any tax-related matters, be sure to consult your tax advisor as well.