When it comes to retirement, it is essential that you save. However, it can be difficult to know what to do given all the choices of account types. However, here is a simple guide to get you through.
There are two main types of retirement accounts (with many variations): employer sponsored and individual accounts.
Employer Sponsored Accounts
The main employer sponsored retirement accounts are pensions, 401ks, and 403bs.
Pensions are considered to be defined benefit plans. So while you may have a cash value, what you are really getting is a defined benefit at retirement. If you leave before then, you can usually roll that cash value into an individual roll-over account, or you can leave it with the company and take the pension upon retirement.
401ks and 403bs are considered to be defined contribution plans. These plans are where you and/or your employer contribute to your retirement. Many employers offer a match to any employee contributions as an incentive to participate. These plans also have investments within them, which are typically decided on by the employee.
Individual Retirement Plans
The two main types of individual retirement plans are traditional IRAs (Individual Retirement Accounts) and Roth IRAs.
A traditional IRA is an account that allows you to deposit before tax money, invest it, and then pay tax on the money when it is withdrawn. All money is not taxed as long as it is in the account. Depending on the nature of the contribution, this IRA may be considered deductible or non-deductible.
A Roth IRA is an account that allows you to deposit after tax money, invest it, and then withdraw the money tax free in retirement.
There are many other variations of individual retirement plans, including plans for self-employed individuals (that are almost a hybrid between the employer sponsored plans and the individual plans). Some of these other plans may suit your situation better, so check with a professional before opening one.