Which Retirement Savings Plan is Best for Me?
We’ve all seen the commercials, read the headlines, heard the experts, and/or have been on the receiving end of financial advice at one point in time that touted the benefits of saving for retirement. With this recommendation plastered everywhere, why is it that so many are not heeding this advice? Many point to the materialistic mindset society has shifted toward or the strong desire to “keep up with the Jones.” Others claim they have fallen prey to runaway inflation and cost of living creep. Perhaps for some it is simply lack of knowledge. For those who suffer from the former, recalibration may be in order first and foremost. For those who suffer primarily from the latter, it is nothing a little bit of reading and effort can’t solve.
Why Save?
Social Security is not enough
According to a survey from Bankrate, 77 percent of current retirees are reliant on Social Security to pay for necessary expenses. However, it is only meant to replace a portion of your income, NOT all of it. The Social Security Administration says the program should replace about 43 percent of your pre-retirement income for medium earners. The 2024 Social Security Medicare Board of Trustees report projects that the program won’t be able to pay full benefits by 2033, if no legislative action is taken, which could reduce payouts to 83 percent of promised amounts. The average monthly Social Security check was $1,976 as of January 2025, which is hardly enough to live on when you factor in daily living expenses, the cost of healthcare, and inflation. Proper planning and saving are crucial in preparation for retirement.
Tax deferred growth is good
Saving in a tax-deferred account such as a 401(k) lowers your taxable income, potentially placing you in a lower tax bracket. Contributions to a traditional 401(k) plan are typically made with pre-tax dollars, which means the money you contribute is deducted from your gross income before taxes are calculated. For example, if you earn $100,000/year and contribute $12,000 to your 401(k), your taxable income for that year would be $88,000. In addition to that, you won’t pay taxes on any earnings (investment gains) inside your 401(k) as they accumulate until you withdraw them later in life. At that point, you will need to pay tax on both the contributions and their earnings. These withdrawals will be taxed as ordinary income based on whatever your income tax rate is at the time.
$12,000 is a lot of money, but it is manageable since it is spread across 24 or 26 paychecks throughout the year. For example, an annual salary of $100,000 paid bi-weekly (26 paychecks) with 12% being deducted for 401(k) contributions would yield a gross pay per check of $3,846.15. The 401(k) contribution per check would be $461.54 ($3,846.15 * 0.12).
Healthcare costs are only going to increase
According to Value Penguin data, if you are over age 55, you can expect to pay anywhere from 50% more or even double what you would in your younger years. According to KFF’s analysis, people age 55 and over account for over half of total health spending. Another report from July 2025, titled “Americans’ Challenges with Health Care Costs reflected that under half (44%) of U.S. adults find it difficult to afford healthcare costs. According to Fidelity Investments’ 2025 Retiree Health Care Cost Estimate report, a 65-year old who retired in 2025 can expect to spend $172,500, up from $165,000 in 2024 on health care throughout retirement.
A compelling case as it relates to saving for retirement has been presented. How much to save and which savings vehicle to use depends upon the individual’s goals, needs, existing savings, etc. There are general rules of thumb you can follow or use as a guidepost. For example, Fidelity suggests aiming to save at least 1x your income by age 30, 3x by 40, 6x by 50, and 8x by 60. Savings factors are based on the assumption that a person saves 15% of their income annually beginning at age 25 (which includes any employer match), invests more than 50% on average of their savings in stocks over their lifetime, retires at age 67, and plans to maintain their preretirement lifestyle in retirement. It is important to note that if you spend more than you make, the general rules of thumb may not work for you. As for the proper savings vehicle to use, we’ve created a chart detailing the various options and highlighting their features, benefits, and things to consider.
| Plan Type | Plan Features | Benefits | Things to Consider |
|---|---|---|---|
| Simple IRA | Available to employers with 100 employees or less who earned at least $5,000 in previous year.
Contribution requirements: Employees may contribute up to $17,000 ($21,000 age 50+, $22,250 age 60–63). Must be established by October 1st of current tax year. |
Simple, easy, and inexpensive retirement plan to implement and maintain.
Employer contributions are deductible business expenses. Employee contributions are deferred pre-tax and grow tax deferred Investment options are greater than most other retirement plans |
Distributions taxed as income + 10% penalty under age 59.5.
Two year waiting period to transfer SIMPLE funds to another IRA (25% early distribution penalty if processed during this time) Employees always 100% vested in all SIMPLE IRA money |
| Traditional IRA | Anyone with earned income can contribute to a traditional IRA.
2026 limit: $7,500 / $8,600 age 50+ (combined across all IRAs). |
Contributions are tax deductible on both state and federal tax returns for the year you make the contribution
You pay no taxes on the growth of your contributed funds, as long as they remain in the account. Withdrawals are penalty-free beginning at age 59.5. Prior to 59.5, subject to 10% early withdrawal penalty unless exception applies |
Withdrawals in retirement are taxed at ordinary income tax rates.
Require you to start taking required minimum distributions (RMDs) – mandatory taxable withdrawals of a certain percentage of your funds at age 73 (if born in 1951 through 1959) OR at age 75 (if born in 1960 or later) May not be eligible for a tax deduction or tax deduction may be reduced if income exceeds certain IRS limits and you or your spouse are covered by employer’s retirement plan |
| Roth IRA | Retirement account funded with post-tax money
2026 contribution limit of $7,500 per year or $8,600 if over age 50 Eligibility based on income. For 2026, AGI under $168,000 for single filers and AGI between $242,000 and $252,000 for married filing jointly Contribution deadline of April 15th |
Simple, easy, and inexpensive to implement and maintain
Money grows tax-free; withdrawals in retirement are tax-free. No required minimum distributions Access to entire investment universe Beneficiaries of Roth IRAs don’t owe income tax on withdrawals. The account must be completely emptied by the end of the 10th year after the account owner’s death |
Earnings taxed as ordinary income and subject to 10% early withdrawal penalties if distribution taken prior to age 59.5 (certain exceptions may apply)
Principal contributions are accessible for withdrawal. No current year tax benefits for contributions Backdoor Roth IRA contributions are available for high income earners who typically may be ineligible |
| 401(k) Plan | Typically used by business owners with employees
In 2026, employees can contribute up to $24,500 per year pre-tax, $32,500 if over age 50 and $35,750 if age 60-63. Employers may contribute to an employee’s account. Total combined employee/employer limit for 2026 is $72,000. Adoption of a written plan, recordkeeping system, investment platform required |
Ability to contribute more than SEP & SIMPLE IRAs
Flexibility in plan design (401k match, etc.) Employer contributions are deductible business expenses Employee and employer contributions grow on a tax-deferred basis. Investment options limited to company specific platform
|
Additional expense to establish plan and annual testing/filing fees.
Distributions are taxed as ordinary income and subject to 10% early withdrawal penalties if under age 59.5 Can add Roth provisions to allow tax-free growth. Employer contributions may require vesting by the employee |
| Solo 401(k) Plan | Traditional 401(k) plan covering a business owner with zero employees, or that person and his/her spouse.
Annual contribution limit for 2026 is $24,500 pre-tax or Roth dollars. If age 50-59 or older than 64, you can contribute total of $32,500. If aged 60-63 and the plan allows it, you can contribute a total of $35,750. Aggregate contributions can reach up to $72,000 if under age 50. Allowed to contribute up to 25% of compensation (after Social Security and Medicare) as the employer profit-sharing contribution. IRS limits the amount of compensation that determines retirement contributions – limit for 2026 is $360,000. If solo 401(k) allows Roth contributions, the Roth solo 401(k) contribution limit is the same as the pre-tax contribution limit. Roth withdrawals are tax-free if below age 59.5, disabled, or taking distribution from inherited account, and the 5-year aging requirement has been met Beginning in 2026, participants in 401(k)s who are aged 50 or older and had prior-year W-2 compensation of $145,000 or greater must make any catch-up contributions on a Roth basis. The compensation figure rises to $150,000 for the 2026 tax year |
Easier to implement and maintain than traditional 401(k) (no annual filings if plan has less than $250,000 in assets; no discrimination testing required
Ability to contribute more than SEP & SIMPLE IRAs Employer contributions are deductible business expenses. Employee and employer contributions grow on tax-deferred basis
|
Expense to establish plan documents and annual testing/filing fees (if over $250,000)
Distributions are taxed as ordinary income and subject to an early 10% withdrawal penalty if under age 59.5. If additional employees are hired, a traditional 401(k) would be required |
| SEP IRA | Must be a sole proprietor, business owner, in a partnership or earn self-employment income.
Contributions made by employer only. Sole proprietors can contribute 25% of net self-employment income up to $72,000/year in 2026. Contribution deadline of April 15th or extension date Equal contribution must be made for all employees. |
Simple, easy, and inexpensive to maintain/implement.
Contributions are deducted from total income on page 1 of Form 1040 Earnings grow on a tax-deferred basis. Investment options available are greater than most other retirement plans |
Distributions are taxed as ordinary income and subject to an early 10% withdrawal penalty if under age 59.5.
Potential for significant cash outlay by business owner if multiple employees are on staff. Employees are always 100% vested in all SEP IRA money |
If you are interested in working with a fee-only registered investment advisor fiduciary, please contact us at 410-840-9200 or visit us at www.mainstadvisors.com.
Main Street Advisors, LLC. December 2025. Main Street Advisors, Inc. is a Registered Investment Advisor. The articles and opinions expressed in this material were gathered from a variety of sources, but are reviewed by Main Street Advisors, LLC, prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of December 2025 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual situation. Always contact your financial/investment professional before making any financial decisions. Main Street Advisors, LLC is not responsible for any damage or losses arising from any use of this information. Past performance is no guarantee of future results.
Bankrate. (March 5, 2025). Worried about the future of Social Security? 5 ways to supplement retirement income
https://www.bankrate.com/retirement/social-security-alternative-retirement-income/#social-security-wont-be-enough
Thomson Reuters. (November 25, 2025). 401(k) tax FAQ: Tax considerations for contributions and withdrawals
https://tax.thomsonreuters.com/blog/401k-tax-faq-tax-considerations-for-contributions-and-withdrawals/
Kiplinger. (August 13, 2025). Average cost of health care by Age and US state
https://www.kiplinger.com/retirement/average-cost-of-health-care-by-age
Kiplinger. (December 1, 2025). New 2026 tax change could mean more for your IRA and 401(k) savings
2026 IRA and 401(k) Contribution Limits Are Set: What to Know Now | Kiplinger
IRS. (November 13, 2025). 401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500
401(k) limit increases to $24,500 for 2026, IRA limit increases to $7,500 | Internal Revenue Service
Forbes. (November 13, 2025). Here’s how much IRA, 401(k) and other retirement contributions limits increase in 2026
Here’s How Much IRA, 401(k) And Other Retirement Contributions Limits Increase In 2026
