The prevalence of 401(k) plans and IRAs over pensions shifted investment risk from employers to employees.

Only half of American workers have retirement accounts, like 401(k) plans, through their current jobs.

401(k) plans and pensions differ in who has control over the investments

With pension plans, a company contributes to an investment fund from which it distributes regular payments to a retired worker until their death. A 401(k) gives the worker control over contributions in a tax-advantaged account.

US pension plan adoption has declined from 1975 to 2021

Pension plans are a form of guaranteed retirement plan for long-time workers, and they were a major part of industries in the mid-20th century. With the rise of the 401(k) and similar tax-advantaged, defined-contribution accounts, these so-called defined-benefit plans have declined in use by employers. Compare US adoption of both kinds in this table.

Technically speaking, a 401(k) is a type of pension

The Employee Retirement Income Security Act of 1974 lumped both defined-contribution plans like 401(k) plans, and defined benefit plans (like what is colloquially known as a pension) under the term “pension” in order to protect workers and make retirement plan enforcement simpler. Learn more about the ERISA here.

Pension plans investing over 60% in stocks had the highest real returns in 2024

In order to ensure that retirees received all the retirement funds a company or other institution may have promised them, pensions were often limited to investing in run-of-the-mill assets like government securities, investment-grade bonds, and blue-chip stocks. But as market conditions have evolved, pensions are increasingly being invested in a wider range of assets, including alternative investments.

IRAs and 401(k) plans both help individuals save for retirement, but have their differences

Anyone can open an IRA, but 401(k) plans are accessible only through an employer. These two retirement vehicles also have different contribution limits per year, with 401(k) plans allowing you to contribute significantly more than an IRA.

Explore the key differences between 401(k) plans and IRAs

A 401(k) is employer-sponsored, may include matching contributions, and allows higher annual contributions (up to $23,000). An IRA is self-managed, offers greater control over investments, and has lower contribution limits ($7,000). Both plans come in traditional and Roth options, but income caps may limit IRA choices, while 401(k)s have no such restrictions.

Roughly 70 million Americans have 401(k) plans

Ted Benna, a rural benefits consultant, proposed a reinterpretation of a small tweak to the Internal Revenue Code in 1980. This led to a fundamental transformation of how American workers plan for retirement.

Some multibillion-dollar pension funds depend on hedge funds

Pensions are responsible for safeguarding the retirement plans of many corporate and government employees alike. Pensions differ from 401(k) plans and sometimes rely on alternative assets, like hedge funds, to insulate their portfolios of billions of dollars from volatility in financial markets. Read the case top pension advisor Cambridge Associates makes for hedge funds.

A 401(k) plan allows workers to save for retirement without paying taxes until later

With a 401(k) plans you can invest more money now and let it grow with compound interest. Americans have more than $7T invested in these types of accounts.

Roth 401(k) plans vs regular 401(k) plans

A normal 401(k) defers tax payments to later, while a Roth requires no tax payments at withdrawal time. Financial experts often recommend investing in a Roth 401(k) plan or Roth IRA when someone first starts their career to lock in a relatively low tax rate.

The 401(k) is limited in its ability to provide guaranteed retirement income

Part of the problem is the high, often hidden fees associated with the accounts and a lack of access. Plus, analysts say the annual cost in tax revenue to the government is more than $100B.

Pension funds' allocations to risky, alternative investments increased by 25% between 2001 and 2021

The portion of pension funds' risky investments, including alternative investments such as private equity, increased from 14% in 2001 to 39% in 2021. Analysts say private equity investments have delivered higher returns than traditional assets like stocks and bonds. Increased investment in private equity has also given pensions a way to recover from the 2008 financial crisis without necessarily investing more money.

A basic guide to retirement savings account options, the IRA and the 401(k)

The two main types of accounts are 401(k) plans and individual retirement accounts (IRAs)—but what do those mean, exactly? There are differences between the two types, as well as the subtypes beneath them.

Some people roll their 401(k) into an IRA to have more control over their account

However, some argue that you could end up paying less money to invest in a 401(k) plan than you would to invest in an IRA. This article offers a list of pros and cons regarding rolling a 401(k) into an IRA.

Fees can eat away at your 401(k)

Every investment plan has an expense ratio—a percentage of the total assets that goes to the investment manager in the form of fees. Because 401(k) plans are so common, and many of their participants are not savvy investors, the relative expense ratio for them has often excessively increased.

Researchers, experts, and retirees are finding that the 401(k) has left much to be desired

Baby Boomers, once the biggest generation, are now creating the largest wave of retirees in US history. Much of this generation is also the first to retire predominantly on the expectation that their 401(k) plans or similar tax-advantaged accounts performed well in the markets—which isn’t always the case.

The financial crisis in 2008 had a major impact on many 401(k) plans

Amid the 2008 financial crisis, stocks and bonds cratered as the broader market floundered due to the subprime mortgage crisis. Investors with so-called "target-date" funds—which shift allocations based on the maturation of a fund—shared in the slump, with some funds declining by 20% or more just a year or two away from maturation.

Having two retirement accounts has its pros and cons

Contributing to both an IRA and a 401(k) lets you increase your retirement savings by about 30% every year. However, you’ll also spend more time actively investing that money and pay more in fees.

Roth IRAs were first introduced in the Taxpayer Relief Act of 1997

The Roth IRA is one of the most popular retirement accounts in the US. Nearly a quarter of Americans contributed to a Roth IRA in 2023. But this type of financial account hasn’t been around for that long.

About 98% of companies offering employees a 401(k) plan match employee contributions

Broadly speaking, an employer 401(k) match means that if you invest money into your 401(k), your employer will put cash in, too. But these programs are often fairly nuanced.

The IRS sets new contribution limits for IRAs and 401(k) plans each year

In 2024, individuals could contribute up to $7K across all their IRAs. People aged 50 and older could contribute up to $8K. For 2025, the IRS kept the same contribution limits.

An individual retirement account is a type of tax-advantaged investment account

An IRA lets individuals at most income levels invest either pre- or post-tax money for retirement. IRAs are often good solutions for people who don’t have the option to invest in a 401(k) plan—or for those who want to put even more money aside for retirement.

If your job doesn’t offer a 401(k), you still have retirement savings options

Do you know more than a third of working adults aren't offered a 401(k) through their jobs? If you're part of that group, you still have options for retirement savings, including IRAs, taxable investment accounts, and more.

401(k) is a section of the US tax code

How did 401(k) plans get their name? Check out the 401(k) section (and subsection) of the US tax code made famous by benefits consultant Ted Benna. Tap into your inner accountant and check out the now-famous portion of the dense, 10,000-section tome that is the Internal Revenue Code.

401(k) plans had an average of $112K as of 2023

The median, however, is much lower at around $27K. The average balance of a 401(k) in the US differs across different age groups and income levels.

Ted Benna is the father of the 401(k)

It took a benefits consultant to highlight the financial power of a subtle, obscure tax code change buried away in Section 401, subsection k of the Internal Revenue Code. Benna realized this section, designed primarily for high-earning corporate executives, could help workers save money on taxes when preparing for retirement.

529s vs. Roth IRA

Roth IRAs and 529 plans both offer tax advantages, but they serve different goals. 529s are state-run accounts meant for education, offering tax-free growth and withdrawals for qualified expenses. Roth IRAs are built for retirement, but can also be tapped for education, with more investment flexibility and fewer contribution limits.

The average American contributed nearly $6,000 to a 401(k) account in 2023

That's an increase over the previous year—and roughly 8% of their total income. When employer contributions are factored in, the total average contribution to 401(k) accounts rose to $8,618 in 2023, up from $8,362 in 2022 and $8,236 in 2021.

Although anyone can contribute to a traditional IRA, not everyone can access its tax deductions

If you or your spouse contributes to a 401(k), you likely won’t be able to deduct your traditional IRA contributions from your taxes. On the flip side, if you don’t contribute to an employer-sponsored retirement account, you’re probably eligible for that tax deduction.

There are four main types of IRAs to choose from

Those types are traditional, Roth, SEP, and SIMPLE. While all IRAs can help you save for retirement, each type has its own tax advantages and eligibility requirements, such as employment type or income level.

Smart tips for making the most of your 401(k)

There’s a lot of advice about handling a 401(k), but it can be mired in disclaimers and legalese. Come prepared to your financial advisor or accountant by watching this informative take on how to properly use a 401(k), from consolidating plans to some of the most common errors.

Most pensions are subject to federal income taxes

Those taxes kick in once someone starts taking distributions from their pension. Whether a pension is subject to state income taxes depends on the state and other factors. Learn more about how pensions are taxed in this article.

Traditional IRAs are tax-deferred—meaning you’ll pay taxes when you withdraw funds during retirement, rather than before you invest in the IRA

You can typically deduct traditional IRA contributions from your taxes. To invest in a Roth IRA, on the other hand, you must contribute money that has already been taxed.

In 2019, Congress passed the Secure Act to reform key aspects of the US tax code

Key Secure Act provisions included raising the age at which mandatory distributions take effect (to increase saving), allowing larger catch-up contributions for older individuals, and allowing employers to directly match contributions in a Roth 401(k).

What is a 401(k)?

Should you get a 401(k)? To make sense of this obscure piece of tax code, here’s a beginner’s guide to one of the more common forms of retirement savings in the US. Learn the history of the 401(k), how to sign up for one, the different types, and more in this well-organized and concise explainer from Investopedia.