Financial Education Clearinghouse


When it comes to saving and investing money for retirement, there are a number of options.

The government, employers and financial institutions offer a number of products to help you reach your goals.

Employer Pension Plans

A pension is a retirement savings plan offered by your employer. A traditional pension pays a specific amount at retirement, usually based on your final wage, years of service and age.

Defined Contribution Plans - 401(k) or 403(b), or 457(b) governmental plan

In place of, or in addition to a pension plan, many employers today offer a defined contribution plan such as a 401(k), a 403(b) or a 457(b) governmental plan. These plans are administered by employers.

Here’s how they work:

  • Contributions are deducted from your paycheck before you pay taxes.
  • The money can be invested in stocks, bonds, mutual funds or other assets.
  • Money grows tax-deferred until it is withdrawn.
  • Possible withdrawal penalty for withdrawals before age 59 ½ . Governmental 457(b) plans do not impose an early withdrawal penalty.

Roth 401(k)/403(b)

This is a relatively new option that plan sponsors may adopt in their defined contribution plans. Under this plan, contributions are made from after-tax dollars and grow tax free. Contribution limits are higher than the Roth Individual Retirement Arrangement (IRA) but cannot exceed the normal 401(k)/403(b) plan contribution limit.

Lump-Sum Payouts

Increasingly, employers are making available to their employees a one-time payment for all or a portion of their pension. This is known as a lump-sum payout option.

If you choose a lump-sum payout instead of monthly payments, the responsibility for managing the money shifts from your employer to you. In addition, you increase the risk of outliving your money, and losing your money due to bad investment advice, fraud, or poor stock market performance.

For more information about lump-sum payouts, we recommend you view the Consumer Financial Protection Bureau's Guide to Lump-Sum Payouts.

Individual Retirement Arrangements (IRAs)

IRA’s are retirement accounts that offer tax advantages over other retirement accounts.

An IRA can be set up through a financial institution, insurance company, mutual fund or stockbroker.

The most common types of IRAs are the traditional and Roth.

Both plans can invest in stocks, bond, mutual funds and other assets and allow penalty-free withdrawals after age 59 ½. The difference between the two is how they’re taxed.

Traditional IRA

  • Contributions may be tax deductible
  • You will pay taxes when you withdraw
  • Possible penalty for withdrawals before age 59 ½
  • No income restrictions

Roth IRA

  • Contributions cannot be deducted from income tax
  • No taxes on withdraws and earnings
  • Possible penalty for withdrawals before age 59 1/2
  • Certain income restrictions apply

For more information on both of these accounts, visit

Self-Employed Pension Plans

Self-employed individuals have the ability to save for retirement on a tax-deferred basis as well.


If you’re self employed, a SEP-IRA allows you to set aside pre-tax income in a tax deferred savings account.

You can open a SEP-IRA at many financial institutions across the country.

Solo 401(K)

Solo or individual 401(k) plans work much like a company 401(k) plan. The plan works for individuals who have no employees. Contributions can be either pre-tax or Roth deferred. There are restrictions on how much you can contribute per year.

You can open a solo 401(k) at many financial institutions across the country.

Simple IRA

Simple IRA’s are designed for businesses with 100 employees or fewer that want to offer a retirement plan. The business owner can choose to match up to a certain percentage of the employees’ contributions. Simple IRA’s are a great starter plan that encourages contributions from employees.


An annuity is a contract with an insurance company to provide retirement income. There are many types of annuities. Some carry high fees that could take away from your earnings. As with any long-term investment, do research and shop around or talk with a financial planner.

More Information about Annuities - From the Washington Office of the Insurance Commissioner