Quick Answer
Individual Retirement Accounts (IRAs) come in Traditional (deductible, taxed later) and Roth (after-tax, tax-free) flavors. Solo 401(k) plans let the self-employed stack employee and employer contributions. Qualified plans (401(k), 403(b)) get Employee Retirement Income Security Act (ERISA) protection; nonqualified plans trade that away for the freedom to favor executives.
The whole unit on one sheet: IRAs, Solo 401(k)s, qualified employer plans, nonqualified arrangements, and every dollar figure the exam loves to swap.
Which One-Liners Win Points?
- Roth IRA: after-tax contributions (never deductible), qualified distributions completely tax-free, and no Required Minimum Distributions (RMDs) for the original owner.
- Roth contributions have income limits; Roth conversions do not. Any taxpayer can convert Traditional dollars to Roth regardless of income.
- Qualified plans (401(k), 403(b)) get an immediate employer deduction, ERISA protection, and creditor protection, but cannot cherry-pick which employees to cover.
- Plan loans are allowed from 401(k) and Solo 401(k) plans; IRAs never permit loans (an IRA loan is a taxable distribution).
Which Numbers Matter Most?
| Item | Value (2026) |
|---|---|
| IRA contribution limit, under age 50 | $7,500 combined across all Traditional + Roth IRAs |
| IRA contribution limit, age 50 or older | $8,600 (includes $1,100 catch-up) |
| Traditional IRA RMD start age | 73 (moves to 75 for those born in 1960 or later, effective 2033) |
| Roth IRA RMDs (original owner) | None |
| Early-withdrawal penalty (Traditional IRA, 401(k), 403(b), Solo 401(k)) | 10% before age 59.5 (unless exception) |
| Solo 401(k) employee elective deferral | $24,500 ($32,500 if age 50+; $35,750 if age 60-63) |
| Solo 401(k) enhanced catch-up (age 60-63) | $11,250 (vs. $8,000 standard) |
| Solo 401(k) employer profit-sharing | up to 20% of net self-employment income (25% is the W-2 employee rate) |
| Solo 401(k) total combined limit | $72,000 ($80,000 if age 50+; $83,250 if age 60-63) |
| 401(k) / 403(b) employee elective deferral | $24,500 ($32,500 if age 50+; $35,750 if age 60-63) |
| 401(k) total contributions (employee + employer) | $72,000 ($80,000 if age 50+; $83,250 if age 60-63) |
| 401(k) / 403(b) RMD start age | 73 (moves to 75 for those born 1960 or later); a non-5%-owner still working may delay if the plan allows (not available for IRAs) |
| Designated Roth account RMDs (Roth 401(k), Roth 403(b), Roth Solo 401(k)) | None (SECURE 2.0) |
| 457(b) employee deferral limit | $24,500 base; age-based catch-up ($32,500/$35,750) generally only for governmental plans |
| 457(b) early-withdrawal penalty | None, at any age, on regular deferrals (rollovers keep source penalty exposure) |
| First-time-home IRA penalty exception | up to $10,000 |
Which Gotchas Trip Students Up?
- The pro-rata rule applies to conversions. If a client holds pre-tax and after-tax IRA dollars, each conversion is a proportional slice of both.
- 457(b) is the no-penalty plan. If someone leaves a job before age 59.5 and taps funds penalty-free, the answer is a 457(b).
How Do Traditional and Roth Accounts Differ?
- Contribution limit: $7,500 under 50, $8,600 at 50 or older, combined across all Traditional and Roth IRAs; cannot exceed earned income for the year.
- Spousal IRAs are permitted when filing jointly if combined earned income covers both contributions.
- Roth: after-tax in, tax-free qualified distributions (5-year clock plus age 59.5, death, disability, or first-time home purchase up to $10,000); principal withdrawable anytime tax- and penalty-free under ordering rules.
What Does a Qualified Plan Buy the Employer?
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Qualified means the plan meets Internal Revenue Code rules to earn tax breaks: employer deduction, tax-deferred growth, and ERISA protection, in exchange for strict eligibility, nondiscrimination, vesting, and reporting rules.
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Defined benefit vs. defined contribution: a defined benefit plan promises a stated retirement benefit and puts the investment risk on the employer; a defined contribution plan defines only what goes in and puts the investment risk on the employee.
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SEP IRA: employer-funded, easy to run, no employee deferrals; the employer must generally cover employees who meet the plan's service test, and contributions are a uniform percentage of pay.
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SIMPLE IRA: for employers with no more than 100 employees earning at least $5,000; employee deferrals up to $17,000 for 2026, and the employer must either match up to 3% of pay or make a 2% nonelective contribution for everyone eligible. Withdrawals inside the two-year clock face a penalty higher than the ordinary 10%.
What Does a Nonqualified Plan Trade Away?
- Doctrines: constructive receipt sets when the employee is taxed (when received or freely available); economic benefit can trigger tax earlier if a current benefit exists; on employer insolvency, participants are general creditors with no priority.
One-Breath Recap
Individual Retirement Accounts split into Traditional (deductible in, ordinary income out, required minimum distributions at 73 or 75) and Roth (after-tax in, tax-free out, none for the owner), capped in 2026 at $7,500 under 50 and $8,600 at 50-plus; only deductibility, not the right to contribute, phases out, and Roth conversions ignore income limits. The Solo 401(k) stacks a $24,500 deferral onto employer profit-sharing up to $72,000 combined ($80,000 at 50+, $83,250 at 60-63) and allows loans IRAs never do. Qualified employer plans give the employer a deduction plus ERISA and creditor protection but forbid cherry-picking employees; nonqualified plans buy freedom to favor executives at the cost of an unsecured promise. The 457(b) has no early-withdrawal penalty and its own separate limit.
Need more than the recap? Read the full Retirement Plans unit.