Employer-Sponsored Retirement Plans

If your employer offers a retirement savings plan, you’ll thank yourself later if you start contributing as soon as you’re eligible. Depending on the type of employer you work for, the plan you’re offered might be a 401(k), a 403(b), a 457, or Thrift Saving Plan (TSP). And be prepared: some 403(b) and 457 plans may be called by different names in different states or by different employers.

All of these plans have similar features, including annual contribution limits. You participate by deferring a percentage of your salary to the plan, and that percentage is withheld every pay period. If it’s pretax income, it reduces the current income tax you owe.

No taxes are due on earnings in your account. In the tax-deferred version of these plans, you defer pretax income, which reduces your taxable income for the year, and you owe taxes only when you withdraw. In the tax-free Roth variation, you defer after-tax income, but withdrawals are free of federal tax provided you follow the withdrawal rules.

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