Retirement Plan
Education Center

Employee stock ownership plans are a way for the employer to benefit the employee in a way that will grant the employee a special interest in the company’s performance by granting them, you guessed it, company stock. The employers contribute to the plan for the benefit of the employee. The employees cannot defer their own income to the ESOP. The stock that is set aside for the employee’s retirement is pre-tax.  The max amount that can be contributed to an employee’s ESOP is the lessor of 25% of total compensation or $70,000 for 2025. Contribution amounts are based on factors such as salary and tenure. You are allowed to make withdrawals after the age of 59 and a half. RMDs are required.

A SIMPLE 401(k) is a retirement plan that is hosted by a business with 100 or fewer employees. SIMPLE 401(k) plans allow the plan participant to defer pre-tax dollars into their plan. Some SIMPLE 401(k) plans allow their participants to contribute after-tax (Roth) contributions as well. As with regular 401(k) plans, the amount that you decide to contribute comes out of your paycheck before you receive it. You are allowed to withdraw money from your SIMPLE 401(k) plan after the age of 59 and a half. In 2025, employees are allowed to defer up to $16,500. At the age of 50, participants are allowed to defer an additional catch-up contribution of $3,500 every year. Employers have the option of implementing a 100% match up to 3% of their employee’s gross income or contributing a non-elective contribution of 2% every year towards their employee’s SIMPLE 401(k) plan. Employees can use the SIMPLE 401(k) to invest in mutual funds, ETFs, individual stocks, and more. The employer is responsible for choosing a list of investment selections for their employees. RMDs are required for the pre-tax contributions, but not for the after-tax contributions. Qualified distributions require the employee to pay ordinary income on what they withdraw unless their distributions are after-tax.

The Thrift Savings Plan (TSP) is a retirement savings vehicle that is specifically designed for federal employees and military personnel, providing benefits similar to private-sector 401(k) plans. Thrift savings plans allow pre-tax and after-tax contributions depending on what the plan document allows. Contributions come out before the paycheck is given to the employee. You are allowed to withdraw money from your TSP after the age of 59 and a half. Pre-tax and after-tax contributions are allowed for the TSP plan depending on the plan document. The employee contribution limit for 2025 is $23,500 annually with additional catch-up contributions capped at $7,500 per year. CSRS employees do not receive an employer match, while FERS employees receive a 1% automatic employer contribution with an additional match (up to another 4%) if the employee chooses to contribute more than 1% of their gross income. Employees have the option to invest in 6 different funds ranging from government securities to international funds. TSP participants have the option to invest in mutual funds if their account balance is greater than $40,000. RMDs are required for the pre-tax contributions, but not for the after-tax contributions. Qualified distributions require the employee to pay ordinary income on what they withdraw unless their distributions are after-tax.

This retirement savings vehicle can only be owned by one individual. 403(b) plans are offered by public schools, 501(c)(3) organizations, and religious institutions. 403(b)s only allow the account owner to defer their own wages from their work into the 403(b)s. That is why it is called a “CODA” (cash or deferred arrangement). You can take your money or choose to save it for later. Your contributions to your 403(b) are taken out by your employer before you receive your wages, so there is no need to report this on your tax return to take advantage of the pre-tax benefit. The maximum amount that the IRS permits your organization to withhold from your wages for the year of 2024 and 2025 is $23,000 and $23,500, respectively. If you are above the age of 50, you are allowed a catch-up contribution of $7,500 for the years of 2024 and 2025. Employees may have the opportunity to make additional contributions of $3,000 for up to five years if eligible. When you take a qualified distribution, you WILL have to pay ordinary income tax on whatever you withdraw whether it be contributions or earnings. RMDs are required. Your investment choices will entirely depend on what your employer offers to you. Common investment choices would be mutual funds and annuities.

401(a) retirement plans can only be owned by one individual. They are typically hosted by governmental employers, non-profit organizations, and educational institutions. Employers have the option to contribute to the 401(a) plan if that is how they would like to set it up. Employees may be required to contribute to the plan, given the option to contribute to the plan, or not given the option to contribute to their 401(a) plan. Employees can contribute up to 25% percent of their annual salary, but the employees and the employers cannot contribute more than $69,000 or $70,000 to the employee’s 401(a) plan for 2024 and 2025, respectively. 401(a) plans do not allow catch up contributions. 401(a) plans can function as a pension fund or a profit-sharing plan (meaning it can function like a cash balance pension plan or a 401(k) plan). Similar to 401(k) plans, you can only withdraw from a 401(a) plan without penalty after the age of 59 and a half. The investment selection is chosen by the employers for the employees to choose from. Target dated mutual funds are common investment choices. Growth is tax deferred. Withdrawals will be taxed as ordinary income. RMDs are required.

The 457(b) plan allows employees to invest pre-tax or after-tax dollars into the plan. Employees do not manually contribute to the plan even if they are selecting the Roth contribution option. All contributions are taken out of the employee’s paycheck before they receive it. 457(b) plans are unique because you can withdraw your pre-tax contributions and earnings before the age of 59 and a half without a penalty. To take advantage of this, you must retire before 59 and a half to start your penalty free withdrawals. The contribution limit is $23,500 for 2025 with a $7,500 catch up contribution limit. If you are within 3 years of retirement, you may contribute up to $47,000 to your 457(b) plan. Both employer and employee contributions are included inside of the $23,500, so it is rare that employers contribute to the 457(b) plan. 457(b) plans typically offer target-dated funds, mutual funds, and ETFs. RMDs are required for pre-tax contributions; however, they are not required for Roth 457(b) contributions.

Cash balance pension plans give the participant the right to a certain amount of money in the employer’s singular cash balance pension plan account. The amount the employee is entitled to is represented in the hypothetical account balance. Participants are promised an interest crediting rate for involvement in the plan. Typically, interest credit rates range from 3-5% every year. Contributions are from the employer and not the employee. The amount that is added to the account every year is called the pay credit. The pay credit also ranges from 3-5% of the participant’s gross income every year. As of 2025, the lifetime limit of a cash balance pension plan is $3.5 million. Typical to most retirement plans, you are allowed to begin taking penalty-free distributions at the age of 59 and half. You also have to take RMDs. Once the participant is allowed to begin withdrawals, they are allowed to put their money into an IRA, take a lump-sum payout, or even purchase an annuity with it. Since the employer bears the investment risk, there is not need for the employee to have to worry about what they are investing in.

Money purchase pension plans are only available to those who are part of a business that offers one. Unlike cash balance pension plans, employees can choose their own investments since their accounts are all separate from each other. The participants are not given a guaranteed growth rate. This also means that the participants of the plan must bear their own investment risk. Contributions are pre-tax and there are no provisions that allow money purchase pension plans to receive Roth contributions. For 2025, contributions from employers and employees toward the money purchase pension plan are capped at the lesser of 25% of compensation, or $70,000. Employers are required to make contributions to the plan as specified in the plan document. For example, the plan can specify that the employer must contribute at least 5% of the employee’s paid compensation every year. Even though some plans allow employees to contribute to it, this is rarely seen in money purchase pension plans. Participants are allowed to take penalty free withdrawals at the age of 59 and a half. RMDs are required.

These plans are like money purchase pension plans in the sense that you can only benefit from one if you are employed by a business that offers one. The employees can choose their own investments, which means that they are at risk with their investments if they end up losing value. This also means that target benefit plans have separate accounts for each participant. The participants are not given a guaranteed growth rate, but the employer is obliged to contribute to the plan as required under the plan document. Contributions from the employers aim to reach a particular account level at a specific date. However, this does not mean that this target amount is guaranteed to the participant. For 2025, contributions from employers toward the target benefit plan are capped at the lesser of 25% of compensation, or $70,000. Target benefit plans allow the employer to contribute more to individuals who are older. These contributes must be higher for older employees because they do not have as much time for their assumed investment return rate to work in their favor. Employees are not allowed to contribute to target benefit plans. Contributions are pre-tax and there are no provisions that allow target benefit plans to receive Roth contributions. Participants are allowed to take penalty free withdrawals at the age of 59 and a half. RMDs are required.

A defined benefit plan is pension plan that only allows employer contributions for the benefit of the employee’s retirement. The employer calculates the employee’s fixed retirement benefit from a specific formula. This is a guarantee from the employer that the plan participant will receive the amount that is promised to them. In 2025, the employer is only allowed to contribute the lessor of 25% of the employee’s compensation or $70,000. In 2025, the maximum that employees can receive during their retirement years is capped at $280,000 or the average income based off their 3 highest earnings years, whichever is less. The maximum lump sum that can be accumulated in 2025 is $3.5 million. The employee does not need to worry about what the investments are because of the guaranteed amount they are entitled to according to the plan document. Employees must wait for the age of 59 and a half to be able to withdraw from the plan without penalty. RMDs are required. Loans are not permitted.