Retirement Accounts, the Basic Types

The sheer number of retirement account names (traditional IRA, Roth IRA, 401(k), SEP, SIMPLE, and more) can make the topic feel more complicated than it needs to be. The IRS maintains an official list of recognized retirement plan types, and the differences between the ones most people actually encounter boil down to a small number of questions: who sets it up, and when do you pay tax on the money.

Individual accounts versus employer-sponsored plans

The first useful split is who establishes the account:

• Individual Retirement Arrangements (IRAs), including traditional and Roth IRAs, are set up by an individual directly, independent of any employer.
• 401(k) plans, 403(b) plans, and SIMPLE IRA plans are employer-sponsored, meaning a business sets up the plan and employees participate through it, often with payroll deductions and sometimes an employer match.
• SEP plans (Simplified Employee Pension) are typically used by self-employed individuals and small business owners as a simpler alternative to a full 401(k) setup.

Within each of these structures, the tax treatment can still vary depending on whether it is a traditional or Roth version.

Traditional versus Roth: the core tax difference

This is the distinction that matters most for everyday decisions:

• Traditional accounts (traditional IRA, traditional 401(k)) generally let you contribute pre-tax or tax-deductible money now, and you pay income tax when you withdraw funds in retirement.
• Roth accounts (Roth IRA, Roth 401(k)) work the opposite way: you contribute money that has already been taxed, and qualified withdrawals in retirement are tax-free.

Neither is universally "better." The traditional structure defers your tax bill to a year when your income, and therefore your tax rate, might be lower (in retirement). The Roth structure locks in your current tax rate now, which can be advantageous if you expect to be in a higher tax bracket later, or simply want tax-free withdrawals with no surprises down the road. There is no single right answer; it depends on your current versus expected future tax situation.

IRA contribution limits are a shared pool, not per-account

A detail that catches people off guard: if you have both a traditional IRA and a Roth IRA, the IRS contribution limit applies to the combined total across both accounts, not to each one separately. For 2026, the total you can contribute across all of your traditional and Roth IRAs combined is $7,500, or $8,600 if you are age 50 or older (this is sometimes referred to as the "catch-up contribution" for those closer to retirement age).

This differs from employer-sponsored plans like 401(k)s, which have their own separate contribution limits, meaning someone can contribute up to the IRA limit and also separately up to the 401(k) limit in the same year, since these are tracked independently by the IRS.

Why income limits matter for Roth contributions specifically

Roth IRA contributions can be limited or phased out entirely based on your income and filing status, a restriction that does not apply the same way to traditional IRA contributions (though traditional IRA tax deductibility can be limited if you or a spouse is covered by a workplace retirement plan). This is one of the more commonly misunderstood rules: being "too high income" for a Roth IRA does not mean you cannot save for retirement at all, it means that specific account type has an income ceiling that traditional IRAs and most employer-sponsored plans do not share in the same way.

SEP and SIMPLE plans: built for small business and self-employment

For people running a small business or working as a sole proprietor, SEP plans and SIMPLE IRA plans exist as retirement options that do not require the administrative complexity of a full 401(k). A SEP plan, for example, allows an employer (including a self-employed individual acting as their own employer) to make contributions to retirement accounts on behalf of themselves and any employees, generally with higher contribution limits than a standard IRA, making it a common choice for solo business owners who want to save more aggressively than the IRA limit alone would allow.

A short reference, not a recommendation

This overview is informational, describing how these account types are structured and taxed according to IRS guidance. It is not a recommendation for any specific account, provider, or investment within an account. Which account type (or combination) fits your situation depends on your employment status, income level, current tax bracket, and expectations about your future tax bracket, all of which are worth thinking through individually or with a tax professional rather than assuming one type is the default right answer.

Key takeaways

• IRAs are set up individually; 401(k), 403(b), and SIMPLE IRA plans are employer-sponsored; SEP plans are commonly used by the self-employed and small business owners.
• Traditional accounts defer tax to withdrawal; Roth accounts tax contributions now and allow tax-free qualified withdrawals later.
• The IRA contribution limit ($7,500, or $8,600 if age 50 or older, for 2026) applies across all of your traditional and Roth IRAs combined, not per account.
• 401(k) and similar employer-sponsored plans have separate contribution limits from IRAs, so both can be used in the same year.
• Roth IRA contributions can be limited by income; traditional IRA contributions are not limited the same way, though their tax deductibility can be if you have a workplace plan.

None of this requires choosing perfectly on the first try. Contribution limits reset every year, and most people use more than one account type over a working lifetime as their income and circumstances change.