COMPARE: Types of Retirement Accounts

After youve set your retirement goal, the second step in planning for retirement is to open a retirement account, of which there are a few types. As with any financial decision, before you sign up, youd want to read the specific fine print for your account, as the resources below give general information, just to get you started.

Part I - Distinguishing features of retirement accounts

In the chart below, the first column contains a statement. Mark an X in each type of retirement account for which the statement is true. If the statement doesn't apply to that type of retirement account, leave the box empty. To help you complete the chart, read and watch these videos on types of retirement accounts:

PENSIONS: If you havent already read this in the module, read this article, What is a Pension? Is It All Youll Need to Retire?

CHOOSING AN ACCOUNT TYPE OVERVIEW: Watch this from 1:20 to 3:44, Three Steps to Plan for Retirement

401(k): Watch this video, What is a 401(k)?

IRA: Watch this video, What is an IRA?

Factor	Pension	Traditional 401(k)	Traditional IRA	Roth IRA
Eligibility
Nothing about the account changes, even if you switch jobs
Eligibility may be affected by how long you work with a given company
All employers offer this type of account
Taxes
The money you put into this retirement account has already had taxes taken out of it
You pay taxes when you eventually take the money out
Contributions
Your company may contribute funds toward your retirement
Any contributions you make come directly from your paycheck
You make contributions from your bank account
Factor	Pension	Traditional 401(k)	Traditional IRA	Roth IRA
Investment Options
Your employer has some say in how the money is invested
You have some choice in how your contributions are invested
Receiving Your Benefits
Your total retirement benefit will depend on the risk level of the investments you chose
Youre promised a fixed benefit each month, which may increase with inflation

Part II - A few more questions

Answer the following questions, based on what youve learned.

Your friend Ricky says a Roth IRA has the best tax advantages, because you pay taxes now and wont have to pay them when you take the money out in retirement. Why might he be right?

Your friend Jomaine says a Traditional IRA or 401(k) has the best tax advantages because you dont pay any taxes now, and you can wait until you retire to pay taxes. Why might he be right?

Your friend Lucien says pensions and 401(k)s are the best retirement options because they offer you free money. What does he mean by this? Does he have a good point? Why or why not?

If your friend Raheem asks you, What type of account should I use to save for retirement, what would you tell him?