Choosing the right retirement savings plan can feel like navigating a maze—one wrong turn can expose your organization to compliance headaches, unexpected liabilities, and frustrated employees.
A retirement savings plan provides a structured vehicle for employees to set aside funds for their future, offering tax advantages, investment flexibility, and—in many cases—employer contributions. For plan sponsors, the decision carries weighty responsibilities: adhering to ERISA requirements, fulfilling fiduciary duties, managing potential risks, and keeping costs under control.
No single arrangement meets every organization’s needs. Companies differ in size, industry, workforce demographics, and budgetary constraints. What works for a small nonprofit may not suit a mid-sized manufacturing firm, and a high-growth startup might require very different features than a stable public employer.
In this guide, we’ll cover ten major types of retirement savings plans:
- 401(k) Plans
- 403(b) Plans
- 457(b) Plans
- Traditional IRAs
- Roth IRAs
- SEP IRAs
- SIMPLE IRAs
- Defined Benefit (Pension) Plans
- Cash Balance Plans
- 401(h) Accounts
Let’s explore each of these retirement savings plans in detail—how they work, who they’re best for, and key factors to consider when choosing.
1. 401(k) Plans
401(k) plans are the cornerstone of employer-sponsored defined contribution arrangements. You’ve likely seen them offered across industries—from small startups to large corporations—because they strike a balance between tax incentives, employee engagement, and administrative familiarity.
At its core, a 401(k) plan lets employees defer a portion of their salary into an investment account, often with an employer match. Participants choose investments from a menu of mutual funds, target-date funds or other options, while plan administrators handle payroll deductions, recordkeeping, compliance testing, and government filings.
Definition of 401(k) Plans
In a Traditional 401(k), employees contribute pre-tax dollars, reducing current taxable income. Earnings grow tax-deferred until distributions begin, typically after age 59½, at which point withdrawals are taxed as ordinary income. Roth 401(k) elections work in reverse: contributions come from after-tax pay, but qualified distributions (contributions and earnings) are tax-free.
Both versions operate via automatic payroll deductions. Employers may match contributions dollar-for-dollar up to a percentage of salary or offer a fixed non-elective contribution, fostering participation and boosting retirement savings.
Key Features and Contribution Limits
- 2025 elective deferral limit: up to $23,500 per employee
- Catch-up contributions: additional $7,500 for participants aged 50 and older
- Total annual limit (employee + employer): $69,000, or $76,500 including catch-up
- Flexibility to choose pre-tax or Roth deferrals
- Automatic enrollment and escalation options streamline savings behavior
These limits reset each year according to IRS guidance, so sponsors should update plan documents and payroll systems accordingly.
Pros and Cons of 401(k) Plans
Pros:
- Tax advantages on contributions and earnings
- Employer match incentivizes participation and retention
- Wide range of investment choices and plan design options
Cons:
- Annual nondiscrimination tests (e.g., ADP/ACP) add administrative burden
- Fiduciary duties expose sponsors to ERISA liability if procedures aren’t followed
- Recordkeeping and compliance can be complex without third-party support
Impact of SECURE 2.0 Act on 401(k) Plans
The SECURE 2.0 Act introduces key enhancements for plans starting in 2025:
- New plans must automatically enroll eligible employees at a contribution rate of at least 3%, escalating by 1% annually up to 10%
- Employers offering auto-features may see higher participation and improved long-term outcomes
- Catch-up limits increase for participants aged 60–63, allowing up to $11,250 in additional contributions
For a deeper dive, refer to this SECURE 2.0 Act overview.
How to Choose a 401(k) Plan
When selecting or updating your 401(k), consider:
- Company size and budget for matching contributions
- Internal resources or the need for outsourced administration
- Employee demographics—will auto-enrollment and auto-escalation resonate?
- Recordkeeper fees, investment lineup, and flexibility in plan design
Balancing cost control with robust features is critical. If you want help implementing or optimizing a plan, our 401(k) administration services can guide you through setup, compliance, and ongoing fiduciary support.
2. 403(b) Plans
For organizations that operate in the public education, nonprofit, or religious sectors, the 403(b) plan offers a familiar, 401(k)-style retirement savings vehicle with some unique perks. These plans fill the same niche—helping employees defer salary into an investment account—but are exclusively available to certain tax-exempt employers.
Definition and Eligibility
A 403(b) plan is a tax-advantaged retirement plan sponsored by public schools, colleges, universities, charitable organizations, and churches. Employees can elect to defer a portion of their salary into the plan on a pre-tax or Roth (after-tax) basis. Contributions are withheld through payroll deductions, grow tax-deferred (or tax-free in a Roth 403(b)), and are distributed at retirement under the plan’s terms. Employers may choose to match employee deferrals or make discretionary contributions, though matching is less common than in 401(k) plans.
Contribution Limits and Special Provisions
The IRS sets annual contribution limits for 403(b) plans that mirror those for 401(k)s:
- Employee elective deferrals: up to $23,500 in 2025
- Age-50+ catch-up: additional $7,500
On top of the standard age-50 catch-up, employees with at least 15 years of service at the same eligible employer can qualify for an extra “15-year service” catch-up. Under this provision, participants may contribute up to $15,000 more over their lifetime, subject to certain IRS rules.
Catch-Up Contribution Options
403(b) participants have two pathways to boost their deferrals:
- Age-50 catch-up under IRC §414(v): a flat $7,500 extra in 2025.
- 15-year service catch-up: allows additional contributions based on years of service (lifetime limit applies).
These rules can overlap, but the total deferral can’t exceed the lesser of the 15-year service limit or 100% of includible compensation. For the fine print, see the IRS guidance on 403(b) catch-up contributions.
Pros and Cons
Pros:
- Generally exempt from the annual nondiscrimination testing that burdens 401(k) plans
- Supports both pre-tax and Roth deferrals, giving employees tax-planning flexibility
- Well-known structure with established recordkeepers in the education and nonprofit space
Cons:
- Investment options may be limited to annuities or a narrow mutual fund lineup
- Complex coordination of age-50 and 15-year catch-up provisions
- Some plans impose higher fees for annuity contracts
How to Choose a 403(b) Plan
When evaluating a 403(b) for your organization, consider:
- The size and turnover of your workforce—high turnover can complicate service-based catch-ups
- Your existing relationships with recordkeepers and annuity providers
- Whether you want to offer Roth deferrals alongside pre-tax contributions
- Administrative capacity for handling unique catch-up calculations
A 403(b) plan often makes sense for school districts or small nonprofits that want to offer a retirement benefit without the full spectrum of 401(k) testing. If you need help designing or administering a compliant 403(b), Summit Consulting Group can integrate with your current recordkeeper platform and handle fiduciary responsibilities from day one.
3. 457(b) Plans
457(b) plans offer a way for certain employees to defer compensation beyond what’s available in 401(k) or 403(b) plans. While they share many characteristics with traditional defined contribution arrangements—salary deferrals, tax-deferred growth, and investment options—they’re reserved for public sector workers and select nonprofit executives. This makes them a valuable tool for plan sponsors aiming to boost savings potential and offer more flexible withdrawal rules.
Governmental 457(b) plans are governed by Section 457 of the Internal Revenue Code and provide full IRS tax benefits, whereas non-governmental plans (often used by nonprofit organizations) have more limited protections. Whether your organization operates at the state or local level or qualifies as a 501(c)(3), understanding these distinctions is key to selecting the right structure.
Definition and Eligibility
Governmental 457(b) plans are open to employees of state and local governments, including public school districts, municipalities, and certain state agencies. Participants can defer a portion of their salary on a pre-tax basis, with contributions growing tax-deferred until distribution.
Non-governmental 457(b) plans are sponsored by tax-exempt employers—think hospitals, charitable organizations, or private colleges—offering similar deferral mechanics but lacking broader IRS protections. Benefits in non-governmental plans remain subject to the employer’s creditors until paid, so these arrangements are best suited for executives comfortable with the plan sponsor’s financial strength.
Contribution Limits and Special Catch-Up
- Standard elective deferral limit: $23,500 in 2025.
- Age-50+ catch-up: additional $7,500.
- Governmental 457(b) “three-year pre-retirement” catch-up: participants within three years of normal retirement age may defer up to twice the annual limit, subject to unused contribution room.
These catch-up features can supercharge retirement savings, particularly for employees who join the plan later in their careers or want an extra boost before they retire.
Pros and Cons
Pros:
- Penalty-free withdrawals upon separation from service (regardless of age) for governmental plans.
- High deferral potential when combined with other retirement plans, helping employees maximize tax-advantaged savings.
- Three-year catch-up option allows accelerated savings without tapping IRAs or other accounts.
Cons:
- Non-governmental plans do not enjoy full ERISA or IRS protections, exposing participants to creditor risk.
- Limited plan design flexibility and fewer standardized administrative resources compared to 401(k)s and 403(b)s.
- Withdrawals are treated as ordinary income, and rollovers to IRAs may be restricted.
When to Choose a 457(b) Plan
Opt for a 457(b) plan if your organization wants to enhance retirement benefits for public sector staff or provide senior executives at nonprofits with additional deferral space. It’s particularly valuable when employees are maximizing contributions to 401(k) or 403(b) plans and need another vehicle to shelter more compensation from current taxation. If you need help assessing whether a 457(b) fits your goals and compliance requirements, Summit Consulting Group can guide you through setup, administration, and fiduciary oversight.
4. Traditional IRA
A Traditional IRA is a retirement account that you open and manage on your own, independent of any employer-sponsored plan. Contributions are made with pre-tax dollars, reducing your taxable income in the year you save. Once in the account, those funds grow tax-deferred—meaning you don’t pay taxes on earnings until you take distributions in retirement.
Because it’s individually controlled, you choose where to invest: stocks, bonds, mutual funds, ETFs or a mix of assets. Unlike workplace plans, you won’t worry about nondiscrimination testing or employer matching formulas. That simplicity makes the Traditional IRA a flexible complement to other retirement vehicles.
Contribution Limits and Deductibility
For 2025, you can contribute up to $7,000 if you’re under age 50, and up to $8,000 if you’re 50 or older. However, the tax deduction for your contribution may phase out depending on your modified adjusted gross income (MAGI) and whether you—or your spouse—are covered by a workplace retirement plan.
- Single filers covered by a plan at work see their deduction phase out between a MAGI of $73,000 and $83,000.
- Married couples filing jointly, where the IRA contributor is covered by an employer plan, face a phase-out range of $116,000 to $136,000.
- If you’re not covered by a work plan but your spouse is, the deduction phases out between $218,000 and $228,000 in joint MAGI.
Above those thresholds, you can still contribute but won’t receive a tax deduction. It’s wise to check the IRS limits each year, as they adjust for inflation.
Key Benefits
- Tax deduction on contributions lowers your taxable income today.
- Compound growth accelerates retirement savings over time.
- Broad investment options let you tailor risk and return to your goals.
- No employer involvement means you set your own contribution schedule and investment strategy.
By reducing current taxes and deferring asset growth, a Traditional IRA can help you maximize savings, especially if you expect to be in a lower tax bracket once you retire.
Pros and Cons
Pros:
- Immediate tax break on eligible contributions
- Wide range of investment vehicles and account providers
- Control over contributions and withdrawals
Cons:
- Required minimum distributions (RMDs) begin at age 73
- Early withdrawals (before age 59½) may incur a 10% penalty plus income tax
- Income limits affect deductibility if you or your spouse have a workplace plan
Ideal Candidates
Traditional IRAs often suit individuals who lack access to an employer-sponsored retirement plan or who want to stack additional tax-deferred savings on top of a 401(k) or 403(b). They’re also a smart choice for anyone seeking an upfront tax deduction, particularly those in higher current tax brackets who anticipate lower taxes in retirement.
If you’re weighing your options, make sure to compare a Traditional IRA’s features against a Roth IRA, workplace plans and other vehicles. That way, you can strike the right balance of tax benefits, investment flexibility and withdrawal rules for your unique situation.
5. Roth IRA
A Roth IRA is an individually opened retirement account funded with after-tax contributions, offering the chance for investments to grow and be withdrawn tax-free in retirement. Unlike a Traditional IRA, where you deduct contributions now and pay taxes later, the Roth flips the timing: you pay income tax on your contributions today, but both contributions and earnings can be withdrawn tax-free once you meet certain conditions. This structure makes a Roth IRA a powerful tool for long-term tax planning and estate transfer.
Contribution Limits and Income Phase-Outs
The contribution limits for a Roth IRA match those of a Traditional IRA: up to $7,000 in 2025 for savers under age 50, and up to $8,000 for those 50 and older. However, eligibility to contribute phases out at higher income levels. For 2025, single filers with a modified adjusted gross income (MAGI) between $138,000 and $153,000 see reduced contribution limits, while those earning above $153,000 cannot contribute directly. Married couples filing jointly face a phase-out range of $218,000 to $228,000 in MAGI.
Key Benefits
One of the biggest advantages of a Roth IRA is tax-free growth and distributions. Since you’ve already paid taxes on your contributions, qualified withdrawals—taken after age 59½ and once the account has been open for at least five years—come out completely tax-free. There are no required minimum distributions (RMDs) during the original owner’s lifetime, allowing the account balance to compound longer. Furthermore, a Roth IRA can serve as an effective estate-planning tool, as heirs generally receive tax-free distributions.
Pros and Cons
Pros:
- Offers tax diversification by locking in today’s tax rates
- Qualified withdrawals of both contributions and earnings are free from federal income tax
- No RMDs means you can leave assets in the account as long as you wish
Cons:
- Contributions are not tax-deductible up front
- High-income earners may be phased out of eligibility
- Five-year rule and age requirement must be met before tax-free withdrawals
When to Choose a Roth IRA
A Roth IRA often makes sense for younger savers who expect their tax rate to rise over time, or for individuals in lower brackets today looking to secure tax-free income in retirement. It’s also appealing if you want flexibility—since you can withdraw contributions (but not earnings) at any time without penalty—and to leave a tax-efficient legacy to beneficiaries. Consider a Roth IRA when you’ve maxed out tax-deferred options or when your current tax situation favors paying taxes now rather than later.
6. SEP IRA
A SEP (Simplified Employee Pension) IRA is a retirement plan funded entirely by the employer, making it an attractive option for small businesses and self-employed individuals. With minimal administrative requirements and flexible funding each year, SEP IRAs allow sponsors to contribute significant amounts toward retirement on behalf of themselves and eligible employees. Because contributions rest with individual IRAs rather than a central trust, setup is straightforward and ongoing compliance is relatively light.
Contribution Rules and Limits
Under a SEP IRA, only employers make contributions, up to the lesser of:
- 25% of an employee’s compensation
- $70,000 for 2025
Self-employed individuals calculate their contribution based on net earnings from self-employment, taking into account the plan’s contribution rate on “earned income” after deducting one-half of self-employment tax and plan contributions themselves. That nuance means the effective contribution percentage for self-employed owners is closer to 20% of net earnings rather than the full 25%.
Employers can decide annually whether and how much to fund a SEP IRA, offering flexibility to adjust contributions in response to business performance. Contributions must be made by the employer’s tax-filing deadline, including extensions, and the same percentage must apply uniformly to all eligible employees.
Pros and Cons
Pros:
- High contribution ceiling compared to most other retirement plans
- Simple setup—no annual IRS filings (Form 5500) if only SEP IRAs are offered
- Flexible employer funding—contribute only in profitable years
Cons:
- Employer must contribute the same percentage of compensation to all eligible employees, regardless of age or tenure
- Employees cannot defer their own salary; plan relies solely on employer contributions
- Less cost-effective for very small firms if only a few high-earning employees exist
Best Fit Scenarios
SEP IRAs are ideal for solo entrepreneurs or small businesses seeking a high-limit, low-hassle retirement plan. They work especially well when cash flow fluctuates—employers can skip contributions in lean years and ramp up funding when profits allow. If you want to maximize tax-deductible savings without getting bogged down in compliance testing or complex administration, a SEP IRA could be the right choice for your organization.
7. SIMPLE IRA
SIMPLE IRAs—short for Savings Incentive Match Plan for Employees—provide an easy-to-administer retirement option for employers with 100 or fewer employees. They combine employee salary deferrals with mandatory employer contributions, bypassing many of the rules that complicate 401(k) plans.
The plan’s name says it all: SIMPLE IRAs require minimal paperwork, exempt employers from annual nondiscrimination testing and let staff save through payroll deductions. However, lower contribution limits and the requirement to contribute for all eligible workers mean you’ll need to weigh simplicity against savings potential.
Contribution Requirements
Employees can defer a portion of their salary directly into a SIMPLE IRA up to $15,500 per year, with an additional $3,500 catch-up contribution if they’re age 50 or older. Meanwhile, employers must choose one of two contribution methods:
- A dollar-for-dollar match of up to 3% of each employee’s compensation, or
- A 2% non-elective contribution, made for every eligible employee whether they contribute or not.
Employers must make their contributions by the business’s tax-filing deadline, including extensions. Because contributions rest in individual IRAs rather than a central trust, setting up or closing a SIMPLE IRA is straightforward.
Pros and Cons
Pros:
- No annual nondiscrimination testing saves time and money
- Low setup and administrative costs suit small businesses
- Mandatory employer contributions promote participation
Cons:
- Lower deferral limits compared to 401(k) or SEP IRAs restrict high savers
- Employers must contribute every year, even in lean periods
- No Roth option limits tax-planning flexibility
When to Opt for a SIMPLE IRA
SIMPLE IRAs are a great fit for employers with up to 100 employees who want a low-cost, compliant retirement plan without the complexity of a 401(k). If your organization values ease of setup, predictable administrative requirements and a way to encourage employee savings through employer contributions, a SIMPLE IRA deserves a closer look. For expert guidance on implementing a SIMPLE IRA and managing fiduciary duties, Summit Consulting Group, LLC can help you navigate setup, compliance and ongoing plan administration.
8. Defined Benefit (Pension) Plans
Defined Benefit (DB) plans—often called traditional pensions—promise employees a specified monthly benefit at retirement, calculated by a set formula rather than account balances. Unlike defined contribution arrangements, where investment risk rests with participants, the employer funds and guarantees the benefit, absorbing both investment upside and downside. For many organizations, a DB plan can be a powerful recruitment and retention tool, but it comes with significant funding and administrative commitments.
Benefit Formulas and Funding
Most DB plans base the promised benefit on an employee’s salary history and years of service. A common formula looks like:
Benefit = final average compensation × years of service × accrual rate
For example, an accrual rate of 1.5% applied to a final average salary of $60,000 over 25 years would yield an annual pension of $22,500 (1.5% × $60,000 × 25).
Behind the scenes, actuaries calculate the employer’s required contribution each year, taking into account demographic assumptions, investment returns and plan liabilities. ERISA’s minimum funding standards mandate these actuarial valuations and set deadlines for employer deposits. If investment performance falls short of assumptions, or if assumptions change, the plan sponsor must make up any shortfall—potentially straining cash flow in down years.
Pros and Cons
Pros:
- Predictable, lifetime income for retirees enhances financial security
- Strong retention and recruitment incentive, especially in industries with long tenures
- Investment risk and longevity risk are shifted from employees to the employer
Cons:
- Cost volatility tied to market performance and changing actuarial assumptions
- Complex administration, including annual actuarial valuations, Form 5500 filings and notice requirements
- Potential for large, unexpected contributions if funding levels dip or interest rates change
Ideal Employers
Defined Benefit plans tend to fit organizations that have:
- Stable and predictable cash flow, able to support year-to-year funding obligations
- A long-tenured workforce, where guaranteed benefits yield maximum loyalty and morale
- A strategic focus on offering a differentiated compensation package that rivals the unpredictability of defined contribution plans
If your company values a guaranteed retirement income as a cornerstone of employee benefits—and you’re prepared to manage actuarial and funding complexities—a traditional pension can deliver a compelling promise to your workforce.
9. Cash Balance Plans
Cash Balance Plans blend the predictability of a traditional pension with the statement-like clarity of a defined contribution account. Although participants see a hypothetical “account balance” on their annual statements, the sponsoring employer shoulders all investment risk and guarantees a minimum interest credit. By converting a lump-sum pension promise into notional individual accounts, these plans offer both simplicity in communication and robust retirement savings potential—especially for owners and highly compensated employees.
How Cash Balance Plans Work
Under a Cash Balance Plan, each participant’s notional account grows through two mechanisms:
- Contribution credits: an annual allocation based on a fixed dollar amount or percentage of compensation (for example, 6% of pay).
- Interest credits: a guaranteed rate—often tied to a short-term Treasury yield or a fixed percentage (such as 5%)—that applies to the running balance.
Although the account statements look like a defined contribution plan, actual assets are pooled in a trust and managed by the employer. If investment returns fall short of the promised interest credit, the sponsor makes up the difference. When employees leave or retire, they can take a lump-sum distribution or roll the actuarial equivalent into an IRA or other qualified plan, making portability straightforward.
Pros and Cons
Pros:
- High contribution potential—owners and key executives can save significantly more than with 401(k)s or IRAs
- Predictable, formula-driven funding helps employers budget for retirement outlays
- Notional accounts simplify participant statements and communication
Cons:
- Actuarial valuations and annual compliance testing add complexity and professional fees
- Plan design and administration are more intricate than standard DC arrangements
- Employer faces full market and interest-crediting risk, which may require higher reserves
Best Use Cases
Cash Balance Plans shine when an organization—or its owners—wants to accelerate retirement savings and lock in predictable funding costs. They’re particularly well-suited for:
- High-income business owners seeking maximum annual tax-deferred contributions
- Professional practices (law, accounting, medical) with a handful of high-earning partners
- Companies wanting to supplement a 401(k) or SEP IRA with an additional benefit layer
If you’re considering a Cash Balance Plan and need help with design options, actuarial assumptions or integration with existing retirement vehicles, learn more about Cash Balance Plans from Summit Consulting Group.
10. 401(h) Accounts
Retiree medical benefits can be a significant concern for employees and a costly obligation for sponsors. A 401(h) account is a special-purpose sub-account within a defined benefit plan, dedicated solely to funding health reimbursements for retirees. By combining retirement income and healthcare support in one structure, employers can simplify administration and deliver a more comprehensive benefits package.
Key Features
A 401(h) account sits alongside the main pension trust but holds separate assets earmarked for medical costs. Key attributes include:
- Employer contributions are tax-deductible, lowering current taxable income.
- Assets in the account grow tax-free, enhancing the fund’s long-term value.
- Distributions used to reimburse qualified medical expenses or insurance premiums are tax-free to retirees.
Pros and Cons
Pros:
- Provides tax-free reimbursements for eligible healthcare costs
- Strengthens overall benefits offering by pairing pension and medical support
- Contributions reduce the sponsor’s taxable income immediately
Cons:
- Must adhere to strict IRS rules on eligible expenses, limiting use to medical and insurance costs
- Inflexible for non-medical benefits, reducing plan responsiveness
- Requires careful plan design and ongoing compliance monitoring
When to Consider a 401(h) Account
A 401(h) account makes sense if you already sponsor a defined benefit pension and want to integrate retiree healthcare reimbursements without setting up a separate plan. It’s ideal for organizations looking to leverage tax advantages while enhancing retiree security. To learn how a 401(h) account might fit into your benefits strategy, visit Summit Consulting Group’s page on 401(h) Accounts.
Selecting the Right Retirement Savings Plan for Your Organization
Choosing the best retirement savings plan isn’t a one-size-fits-all decision. You’ll want to weigh several factors to ensure the plan aligns with your company’s goals, resources, and the needs of your workforce. Start by evaluating:
- Workforce demographics: age distribution, tenure, salary levels and turnover.
- Budget constraints: what you can afford in matching or employer contributions, setup and ongoing administration costs.
- Administrative capacity: internal HR bandwidth versus the need for third-party administration and compliance support.
- Compliance and fiduciary risk: ERISA requirements, nondiscrimination testing, and the level of fiduciary liability you’re prepared to assume.
A simple decision matrix—listing plan features against these factors—can help clarify which options rise to the top. For example, if you value high deferral limits and minimal testing, a SEP IRA or Cash Balance Plan could be ideal. If you need broad employee participation with low administrative overhead, a SIMPLE IRA or auto-enrolled 401(k) might fit better.
Even with a clear checklist, navigating plan design, IRS rules and fiduciary obligations can feel daunting. That’s where expert guidance adds value. Summit Consulting Group combines deep ERISA knowledge with streamlined administration to help you select, set up and manage the plan that best suits your organization’s unique profile.
Ready to simplify your retirement plan decision? Reach out to Summit Consulting Group, LLC for tailored advice, end-to-end administration and independent fiduciary services: https://www.geauxsummit401k.com
