IRA vs. 401(k) vs. Roth: Which Retirement Plan Is Right for You?

Tax-Efficient Retirement Savings Plans: How to Maximize Growth & Minimize Taxes

Whether you're a small business owner, self-employed, or a working professional, the key to a successful retirement isn't just how much you save—but how you save. Tax-efficient retirement accounts like IRAs, 401(k)s, and Roth IRAs can significantly reduce your tax burden today or in the future.

In this edition, we break down the major retirement savings plans, how they work, and how to choose the right mix to align with your goals.

1. Traditional IRA: Lower Taxes Today, Pay Later

A Traditional IRA allows you to make tax-deductible contributions (subject to income limits), helping lower your taxable income today. Your money grows tax-deferred until retirement, when you’ll pay taxes on withdrawals.

• 2025 Contribution Limit: $7,000 ($8,000 if age 50+)

• Best For: Those who expect to be in a lower tax bracket in retirement

2. Roth IRA: Pay Taxes Now, Enjoy Tax-Free Withdrawals Later

With a Roth IRA, contributions are made with after-tax dollars—but qualified withdrawals in retirement are completely tax-free. It’s a powerful tool for long-term tax planning, especially if you expect higher income in retirement.

• 2025 Contribution Limit: $7,000 ($8,000 if age 50+)

• Income Limits Apply: Contributions begin phasing out at $146,000 (single) and $230,000 (married filing jointly)

3. 401(k): Maximize Contributions Through Employer Plans

The 401(k) is a workplace retirement plan that allows for much higher contributions than IRAs. Many employers offer matching contributions—free money that shouldn't be left on the table.

• 2025 Contribution Limit: $23,000 ($30,500 if age 50+)

• Tax Options: Choose between Traditional (pre-tax) or Roth 401(k) (after-tax)

• Best For: High earners or those with employer matching programs

4. SEP IRA & Solo 401(k): Ideal for Business Owners & Self-Employed

If you’re self-employed or run a small business, you have access to powerful retirement tools with high contribution limits and flexible funding:

SEP IRA

• Contribution limit is up to 25% of compensation or $69,000 (2025 max)

• Easy to set up and maintain

  
  

Solo 401(k)

• Combines employee and employer contributions up to $69,000

• Roth and loan options available

How to Choose the Right Plan for You

Ask yourself:

• Do you expect your tax rate to be higher or lower in retirement?

• Are you eligible for employer contributions?

• Are you self-employed and need higher contribution limits?

  
  

Plan Type	Contribution Limit	Tax Treatment	Income Limits
Traditional IRA	$7,000/$8,000	Pre-tax, taxed at withdrawal	Yes (for deductibility)
Roth IRA	$7,000/$8,000	After-tax, tax-free withdrawal	Yes (for contributions)
401(k)	$23,000/$30,500	Pre-tax or Roth	No
SEP IRA	Up to $69,000	Pre-tax	No
Solo 401(k)	Up to $69,000	Pre-tax or Roth	No

Tax diversification is key to retirement success. By contributing to both pre-tax and after-tax accounts, you can better manage your tax liability in retirement and adapt to changes in future tax laws.