Member Sign In

If you’re saving for retirement, you’ll likely run into two common options: a workplace retirement plan and an individual retirement account, or IRA. While both help you grow money with tax advantages, they are not the same. The core difference is simple. Qualified retirement plans are offered by employers and follow strict IRS and ERISA rules. IRAs are opened and managed by individuals, even though they share many of the same tax benefits.

Qualified retirement plans include 401(k)s, 403(b)s and pensions.These plans qualify for tax breaks because they meet federal guidelines on eligibility, contributions and employee protections. Traditional and Roth IRAs do not count as qualified plans because they are not employer-sponsored, even though they play a major role in retirement planning.

Retirement Plan Choices for Small Business Owners

For small business owners, SEP and SIMPLE IRAs offer practical retirement options that combine the ease of traditional IRAs with the advantage of employer-funded contributions. These plans are structured to support both employer and employee participation, making it easier to save consistently while sharing the responsibility for building long-term retirement savings.

What Qualified Retirement Plans Offer

A qualified retirement plan is tied to your job. Employers set up these plans and often contribute money on your behalf, either through matching contributions or direct funding. In most cases, your contributions go in before taxes, which lowers your taxable income today. The money then grows tax-deferred until you withdraw it in retirement.

There are two main types of qualified plans. Defined benefit plans, such as traditional pensions, promise a fixed payout after retirement. Defined contribution plans, like 401(k)s, depend on how much you contribute and how your investments perform. Over time, defined contribution plans have become far more common, largely because they give workers more control over their savings.

How IRAs Work Differently

IRAs are not linked to your employer. You open one on your own through a bank or brokerage and decide how the money is invested. A traditional IRA allows tax-deferred growth and may offer a tax deduction upfront, depending on your income and whether you have a retirement plan at work. A Roth IRA uses after-tax money, but qualified withdrawals in retirement are tax-free.

IRAs are especially useful for people who are self-employed or want to save more than their workplace plan allows. They also tend to offer a wider range of investment options than many employer plans.

Contribution Limits and Flexibility

One major difference is how much you can contribute each year. Qualified retirement plans generally allow much higher contributions than IRAs, making them powerful tools for building long-term wealth. IRAs have lower limits, but they offer flexibility and control that many workplace plans do not.

Withdrawal rules also differ. Traditional IRAs and most qualified plans require you to start taking required minimum distributions at a certain age, even if you don’t need the money. Roth IRAs stand out because they do not need withdrawals during the account holder’s lifetime.

Choosing the Right Mix

For most people, the best approach is not choosing between a qualified retirement plan and an IRA, but using both. A workplace plan can form the foundation of your retirement savings, especially if your employer offers a match. An IRA can then supplement those savings and provide more control over taxes and investments. Understanding how these accounts work together can help you build a stronger and more flexible retirement plan.