4 Best Retirement Plans In 2025

The average retirement age for US males is expected to exceed 66 in 2024. With this in mind, planning for a secure retirement is more important than ever.

What should you do if your public pension is insufficient or you don’t have one? And which retirement plan should you choose to minimize taxes and avoid losing money? This article covers the best retirement plans for employees, business owners, and freelancers, helping you make informed decisions for a secure future.

Types of Retirement Plans in the USA

Government-Sponsored Pension Plans

This type of pension plan implies paying contributions to specific retirement funds. Multiple employees contribute to the Social Security fund through payroll taxes at a rate of 6.2%. These contributions are tax-free, but the payouts are not if total retirement income exceeds a certain amount.

Self-employed workers pay for themselves as both employee and employer—12.4% in total. When calculating pension benefits, factors like years of service, total contributions, and inflation rates are considered. In the US, retired women receive an average monthly pension of about $1,700.

To qualify for payments from Social Security, you must have at least 10 years of service.

Federal employees receive pension benefits through a combination of Social Security, an Annuity, and a Thrift Savings Plan. State and local government employees contribute to their own pension systems, with contribution rates varying by state and plan, typically ranging from 3% to 15% of their salary.

Employer-Sponsored Pension Plans

These plans allow participants to defer a portion of their pre-tax earnings to a retirement fund. Companies can suggest matching contributions, and the funds grow by deferring taxation until they are withdrawn at retirement.

Employer-sponsored plans can be defined as either benefit plans or contribution plans. The first type implies receiving a specified fixed financial amount after you retire. They are calculated based on salary level and are viewed as the most complex and expensive. In the second case, the retiree receives the savings that they have contributed in the determined amount. Likely, contributions are estimated as a proportion of salary. Today, employers provide different retirement plans, but the most popular ones are 401(k), 403(b), and 457(b) plans.

Individual Pension Plans

Every American can open a personal IRA retirement savings account and participate in employer-sponsored group retirement plans. The law strictly regulates the procedures for opening and maintaining these accounts.

You pay no tax on your IRA during the accumulation period, but you do pay income tax when you withdraw the budgets and close the account. Typically, retirement accounts are opened in commercial and savings banks, mutual funds, and insurance companies. There are also opportunities for self-employed people to make the best retirement investments. In addition, people can also invest in guaranteed income annuities to create their own income.

What Is the Best Retirement Plan in 2025?

401(k) Plan

These top retirement plans, by popularity, allow employees to contribute a portion of their pre-tax earnings to a retirement account. Additionally, employers have the option to make contributions, and the funds grow by deferring taxation until they are withdrawn at retirement. Payments throughout retirement generate taxable earnings, but withdrawals before age 59.5 can result in taxes and fines.

To participate in this program, you must be at least 21 and be employed for a year.

Key features:

• The money is taken out of your salary and is automatically invested;
• A lot of companies match your contributions;
• No withdrawals for emergencies are allowed;
• The contributed money is tax-deferred.

457(b) Plan

This plan is pretty much like the previous one, as it’s equally tax-efficient. Employees can make pre-tax wage contributions to the plan, which means their income is not subject to taxes. This plan permits contributions to increase without taxation until retirement, after which the employee’s withdrawals become taxable. However, only state workers and employees from tax-exempt organizations have access to them. Unlike a 401(k) plan, the standard 457(b) plan does not include an employer match. In addition, taking an urgent withdrawal from a 457(b) plan is more difficult than from a 401(k).

Key features:

• Contributions grow tax-free till retirement;
• Doesn’t have a fee for withdrawals before reaching 59.5 years of age;
• Includes additional catch-up savings possibilities for elderly employees that other plans do not offer.

Roth IRA

This is an upgraded version of a traditional IRA plan, as it provides huge tax savings. Contributions are taxed, but upon retirement, you may take money out tax-free, so every dollar in your account puts cash in your pocket. Every penny of income earned by your investments in the account is accumulated tax-free, so your retirement savings are flexible to grow. A Roth IRA allows you to withdraw without penalty whenever you want.

There are yearly restrictions on how much you may contribute to your Roth IRA, and the IRS sets a generous contribution maximum every year. In 2024, the cap is set at $7,000. But if you’re over 50, you may make an extra $1,000 every year as a catch-up contribution. These factors make a Roth IRA the best pension plan for those who anticipate higher marginal tax rates in retirement.

Key features:

• No taxes for withdrawals and gains;
• A yearly contribution maximum;
• Allows to cash out contributions before retiring with no penalty.

SEP IRA

SEP IRA is considered to be one of the best retirement accounts for the self-employed and business owners that allows you to contribute a portion of your income. SEP IRAs have higher annual contribution limits than standard IRAs, but only the employer can contribute to them. In 2024, the maximum contributions are $69,000, or 25% of gross income. Employees benefit from a free retirement account. Compared to traditional IRAs, the greater contribution limitations make simplified IRAs far more appealing for self-employed.

To qualify, you must be at least 21 years old, have worked for the employer in 3 of the last 5 years, and earn at least $750 in 2023 ($650 in 2021 and 2022, and $600 in 2019 and 2020).

Key features:

• Larger contribution limitations compared to other IRAs;
• Contributions can be made only by an employer or a freelancer;
• 10 percent penalty on top of income tax for withdrawals made before age 59.5;
• Contributions are tax-deductible as a company’s cost.

Final Thought

You are lucky if your employer offers a beneficial retirement plan. Big companies tend to have numerous options, which might confuse you. Small businesses, on the contrary, provide a small list of plans that you have to choose from. Anyway, you can combine income from a defined contribution plan and an individual one to secure yourself after retirement.