Hello Neighbors,

This month’s column explores major retirement accounts, including income and contribution limits, tax benefits, and other important details. While other options exist, we will focus on the main types to help you navigate your choices.

401(k) and 403(b) Plans

Offered through employers, 401(k)s — and their nonprofit equivalent, the 403(b) — allow employees to contribute pre-tax dollars to investment funds. Most plans include “target-date” funds that adjust risk automatically; they start aggressively with stocks and shift toward safer bonds as your retirement year approaches. Unlike individual accounts, employer-sponsored plans typically offer baskets of investments or index funds — a collection of investments meant to match the performance of an index such as the S&P 500 — rather than individual stocks.

To participate, you elect a dollar amount or percentage of your paycheck for investment — for example, 6%. Traditional 401(k) contributions are pre-tax, lowering your immediate taxable income and the amount withheld from your paycheck. This allows you to invest for retirement while receiving an immediate tax benefit. Many employers are starting to automatically enroll new employees at a small percentage, such as 2%, to establish the habit. You can update this percentage periodically depending on plan rules, and many plans now offer an option to automatically increase your contributions each year — for example, by 1% each Oct. 1.

There are limits to how much an employee can contribute, which change periodically in response to cost-of-living increases. For 2026, the contribution limit is $24,500, with an additional catch-up amount allowed for those 50 and older. Many employers also offer a company match — essentially free money. For example, if your company matches 50% up to 6% invested and you contribute 6%, the company contributes 3%, giving you a total of 9% invested from each paycheck. Those matched dollars do not count toward the employee’s contribution limit. However, be aware of vesting schedules. Some employers use these to encourage longevity; a company might vest over two years, for instance, where 50% of its match becomes yours after the first year and 100% after the second. If you leave early, you keep all your own contributions but only the vested portion of the employer’s match.

Individual Retirement Accounts (IRAs)

An Individual Retirement Account, or IRA, can be opened outside of an employer-sponsored plan; these accounts are completely separate from your employment. An IRA can be opened at many financial institutions, such as Fidelity. There are two types of IRAs, each with its own rules, tax benefits, and income limits.

For a traditional IRA, there is no income limit. For 2026, the contribution limit is $7,500 for those under 50 and $8,600 for those 50 and older; these limits apply to Roth IRAs as well. The tax benefit of a traditional IRA is that contributions may be deducted from your taxes at the end of the year. Although contributions are made with after-tax dollars throughout the year, this deduction lowers your tax liability when filing.

Roth IRA contributions, on the other hand, are made with after-tax dollars but cannot be deducted from your taxes at year’s end. While there is no immediate tax benefit, the real advantage comes in retirement. Money withdrawn from a Roth IRA after age 59½ is completely tax-free — no taxes on contributions and no taxes on growth. Additionally, because Roth IRAs are funded with after-tax dollars, you can withdraw your contributions (not growth) at any time without paying taxes or early withdrawal penalties. Roth IRAs also carry no required minimum distributions (RMDs), unlike other retirement accounts — again, because these accounts are funded with dollars that have already been taxed.

While Roth IRAs offer many benefits, not everyone qualifies. Unlike traditional IRAs, Roth IRAs have income limits. As of 2026, single filers are completely phased out at $168,000 in income, and married couples filing jointly phase out at $252,000. High-income earners do have other strategies available to still contribute to a Roth, but we’ll save that for a future column.

One mistake some people make is contributing to an IRA without then investing the money. Funding an IRA involves two steps: first, transferring money into the account, and second, using that money to invest in a fund. Depending on your institution, you have many options, such as index funds, bond funds, or individual stocks.

When choosing between a traditional or Roth IRA, consider which tax treatment benefits you most. Will you be in a higher tax bracket when you retire? If you believe your income will grow, a Roth IRA might be the better choice — you pay taxes now at a lower rate and withdraw tax-free later. If you expect to be in a similar or lower bracket, you may prefer the immediate deduction of a traditional IRA. Since future tax rates are unknown, it often comes down to whether you prefer paying taxes at today’s rates or betting on the benefits of the future.

One final note about all retirement accounts: Generally, you must wait until age 59½ to withdraw from these accounts without incurring a 10% early withdrawal penalty — in addition to income tax when withdrawing from non-Roth accounts. There are arrangements and certain circumstances where you can avoid this penalty, and we may explore those in a future column.

This was a long one, but full of important information. Thank you so much for sticking with it to the end. I hope you were able to take something away from this. Thanks!

If you have questions related to personal finance or suggestions for topics you would like this column to explore, feel free to email me at masonmoneysolutions@gmail.com.

Currently Reading: “The Four Pillars of Investing” by William J. Bernstein

Andrew Mason, MBA, AFC Candidate

Disclaimer: This column is for educational purposes only and does not constitute financial advice.