- 401(k) plan – This plan takes its name from the section of the Internal Revenue Code that authorizes these tax-sheltered accounts.
- 403(b) plan – This retirement plan is similar to a 401(k) retirement savings account but is offered to public school employees and workers employed by certain tax-exempt organizations.
- 457 plan – This is a deferred compensation plan for employees in the public sector.
- SIMPLE Plan (Savings Incentive Match Plan for Employees) – This is a plan for companies with fewer than 100 employees.
The contributions you make come out of your pre-tax pay, which means you're actually lowering the amount of income the Internal Revenue Service will tax by participating in your company's plan. Also, any earnings will grow tax-free until you retire. If you leave your job and cash out your retirement savings plan, you'll pay taxes and a stiff penalty on the withdrawal unless you transfer your money to another tax-qualified account.
If your company does not offer retirement benefits, you can use Individual Retirement Accounts, or IRAs, to save for retirement or other goals. These accounts are viewed as retirement savings plans, which means you might have to pay a tax penalty if you withdraw your money before you turn 59½. But there are ways to withdraw from an IRA without a penalty if you need the money for certain educational purposes or first-time home buyer expenses.
