All four are retirement plans classified as “defined contribution” plans. All four are offered by employers through a third party financial institution called an “administrator” as a tax-deferred investment vehicle to encourage you to save for retirement. So what’re the differences?
Abstract A common misconception is that 401(k)s and IRAs save you from income tax. They don’t, but they do save you from capital gains tax. With compounding, the additional earnings from tax-advantaged accounts over taxable accounts can be large.