Retirement Plans for Beginners: A Complete Guide to 401(k), IRA, Roth 401(k)/IRA, 403(b) & More

Retirement plans, from the classic 401(k) to modern Roth IRAs, remain the cornerstone of long-term wealth building in the United States. Whether you are a recent graduate setting up your first payroll deduction or a mid-career professional looking to optimize taxes, understanding today’s retirement landscape is non-negotiable. In this comprehensive article we distill the insights shared by former financial advisor and popular YouTuber Humphrey Yang in his video “FINANCIAL ADVISOR Explains: Retirement Plans for Beginners (401k, IRA, Roth 401k/IRA, 403b) .” You will learn—step by step—how each account works,  contribution limits, tax advantages, withdrawal rules, and practical strategies to mix and match plans. By the end, you will have a road-map to start investing immediately and the confidence to refine your approach as your income grows. Let’s dive in.

1. The Traditional 401(k): Your Employer-Sponsored Workhorse

1.1 How a 401(k) Works

The traditional 401(k) is a defined contribution plan offered by for-profit employers. You elect to defer a portion of your salary—before taxes—directly from each paycheck. The company funnels that money into an individual account held at a record-keeper such as Fidelity or Vanguard, where you choose from a pre-selected investment menu. Taxes on both contributions and earnings are postponed until retirement, ideally when your marginal rate is lower.

1.2 2024 Contribution & Catch-Up Limits

For tax year 2024, you may contribute up to $23,000 of salary. Employees aged 50+ qualify for an additional $7,500 catch-up, bringing their ceiling to $30,500. Many employers sweeten the pot with matching—e.g., “100 % of the first 4 % of salary.” Always aim to capture that match; it’s an immediate 100 % return.

1.3 Tax & Withdrawal Implications

Because contributions lower your taxable income now, withdrawals in retirement are fully taxable as ordinary income. Early distributions (before age 59½) typically incur a 10 % penalty plus regular tax, though hardships and certain medical expenses may waive it.

2. Traditional IRA: The Individual Alternative

2.1 Who Can Contribute?

A Traditional Individual Retirement Arrangement (IRA) is not tied to an employer. Anyone with earned income can contribute, but the tax deductibility of those contributions phases out when your income rises and you or your spouse participate in a workplace plan. For 2024, single filers with modified adjusted gross income (MAGI) below $77,000 enjoy a full deduction; it vanishes at $87,000.

2.2 Contribution Strategy

The maximum annual contribution is $7,000 for those under 50 and $8,000 if 50 +. Unlike a 401(k), you have until the tax-filing deadline (April 15, 2025 for the 2024 tax year) to make contributions, enabling last-minute tax planning.

2.3 Withdrawal & Rollover Rules

Funds grow tax-deferred just like a 401(k). Required Minimum Distributions (RMDs) begin at age 73. Rolling old 401(k) money into a traditional IRA often unlocks better investment choices and lower fees, but assess creditor protection and backdoor Roth strategies before executing.

3. Roth Revolution: 401(k) & IRA After-Tax Variants

3.1 Mechanics of a Roth 401(k)

The Roth 401(k) appears on many corporate menus alongside the traditional option. Contributions are made with after-tax dollars, so there is no immediate deduction. However, earnings and qualified withdrawals are 100 % tax-free once the account is held for five years and you reach age 59½. Employer match still lands in a pre-tax “traditional” sub-account, so expect a small tax bill on that portion later.

3.2 Roth IRA Benefits

With a Roth IRA, the same tax-free principle applies, but contribution limits ($7,000/$8,000) and income caps differ. In 2024, single filers start to phase out at $146,000 MAGI and lose eligibility above $161,000, prompting high earners to use the “backdoor” method.

3.3 Roth vs. Traditional: Key Differences

“Taxes are one of the few things you can actually control in investing—choose the right account type today, and your future self will thank you.”

– Humphrey Yang, YouTube Creator & Former Financial Advisor

4. Specialized Accounts: The SEP IRA for Freelancers & Small-Business Owners

4.1 Eligibility & Contribution Formula

The Simplified Employee Pension (SEP) IRA is designed for self-employed individuals and small businesses. Employers can contribute up to 25 % of compensation or $69,000 in 2024, whichever is less. Unlike a Solo 401(k), employee salary-deferral isn’t allowed; all contributions come from the “employer”—that’s you, if you’re a sole proprietor.

4.2 Administrative Ease

Setting up a SEP takes minutes: fill out Form 5305-SEP and open an account at a brokerage. No annual filings to the IRS are required, making it a low-friction choice for freelancers with variable income.

4.3 Advantages and Drawbacks

• High contribution ceiling
• Flexible funding until the tax-filing deadline plus extensions
• Full deductibility as a business expense
• But: mandatory proportional contributions to eligible employees could be costly
• No Roth option, limiting future tax diversification

5. Non-Profit & Government Plans: 403(b) and 457(b)

5.1 403(b): For Educators & Healthcare Workers

The 403(b) mirrors the 401(k) but serves public schools, universities, and certain non-profits. Contribution limits equal the 401(k)’s $23,000 in 2024, plus the same $7,500 catch-up. Some plans offer an additional 15-year service catch-up of $3,000 annually, a perk unique to 403(b)s.

5.2 457(b): Unique Withdrawal Flexibility

Offered to state and local government employees and some non-profits, the 457(b) shares the $23,000 limit but boasts a key difference: no 10 % early-withdrawal penalty when separating from service, even before age 59½. That makes it a potent bridge account for early retirees.

5.3 Using Both Plans Together

If you are lucky enough to have access to both, the limits are separate, allowing you to stash up to $46,000 pre-tax in 2024—an incredible tax-deferral opportunity.

6. Coordinating Multiple Accounts: The Order of Operations

6.1 Matching First

1. Capture full employer match in your 401(k)/403(b)
2. Max out Roth IRA (or traditional, depending on tax bracket)
3. Finish maxing 401(k)/403(b)/457(b) employee deferral
4. Health Savings Account (HSA) contributions
5. Backdoor Roth or Mega Backdoor Roth (after-tax 401(k) conversions)
6. Taxable brokerage for flexibility
7. Accelerated mortgage payments or other goals

6.2 Asset Location

Place bond funds or REITs in tax-deferred accounts, while holding broad-market equity index funds in Roth or taxable accounts to maximize the tax-free growth potential.

6.3 Practical Example

Sara, age 30, earns $80,000 at a tech firm. She contributes 6 % ($4,800) to capture a 4 % match ($3,200). Next, she fully funds a Roth IRA at $7,000. With $11,000 left in her budget, she increases her 401(k) to reach a total of $23,000. Finally, she directs $3,850 to her HSA, hitting the family limit.

7. Implementation Guide for Absolute Beginners

7.1 Seven-Step Checklist

1. Log in to your HR portal and locate the 401(k) section.
2. Select a contribution percentage that at least captures the full company match.
3. Choose a target-date index fund as an easy all-in-one option.
4. Open a Roth IRA at a low-cost brokerage (Fidelity, Schwab, Vanguard).
5. Set up automatic monthly transfers to the Roth, aligning with payday.
6. Annually increase contributions by 1-2 % or upon each raise.
7. Track all contributions and balances in a simple spreadsheet or app.

7.2 Common Pitfalls to Avoid

• Leaving free employer money on the table
• Investing contributions in a money-market “holding” fund by mistake
• Ignoring expense ratios—0.04 % index funds beat 1 % managed funds
• Tapping retirement accounts early for consumer purchases
• Forgetting RMDs on inherited traditional accounts

7.3 Recommended Tools & Resources

Yang highlights calculators on Fidelity, free budgeting templates on his Beacon’s page, and auto-invest platforms like SoFi Invest and Webull (with promotional free stocks) to get started quickly.

Frequently Asked Questions

1. Can I contribute to both a 401(k) and an IRA in the same year?

Yes. The limits are independent. However, if you (or your spouse) are covered by a workplace plan, the deductibility of traditional IRA contributions may be reduced.

2. I make too much for a Roth IRA—what is a backdoor Roth?

A backdoor Roth involves contributing after-tax dollars to a non-deductible traditional IRA and then converting it to a Roth IRA. Tracking basis on Form 8606 is crucial to avoid double taxation.

3. What happens to my 401(k) when I change jobs?

You can leave it where it is, roll it into your new employer’s plan, roll to a traditional IRA, or cash out (the worst choice due to taxes and penalties).

4. Are target-date funds good enough?

For most beginners, a low-cost target-date index fund offers diversification and automatic risk adjustment. As balances grow, you can switch to a three-fund portfolio for finer control.

5. How do Roth IRAs avoid required minimum distributions?

Because the IRS has already collected tax on contributions, it doesn’t mandate withdrawals for the original owner. Beneficiaries, however, must deplete inherited Roth IRAs within 10 years under the SECURE Act.

6. Is an HSA better than a Roth?

For those with high-deductible health plans, an HSA delivers triple tax benefits—pre-tax contribution, tax-free growth, and tax-free medical withdrawals—making it arguably the most powerful account when used for long-term investing.

7. Can I open a SEP IRA and a Solo 401(k)?

Yes, but combined employer contributions across both can’t exceed the $69,000 cap. Evaluate administrative complexity and Roth availability (Solo 401(k) now permits Roth deferrals).

8. Should I pause retirement investing to pay off debt?

Generally, capture the employer match first—free money beats debt APR. Then prioritize high-interest debt (>7 %) before additional retirement contributions.

👉 Understanding retirement plans no longer has to be overwhelming. By mastering:

• How traditional and Roth tax rules differ
• The unique perks of SEPs, 403(b)s, and 457(b)s
• Contribution ceilings and catch-ups for 2024
• The optimal order of operations for multiple accounts
• Practical implementation steps and common pitfalls

you create a durable framework for lifelong financial security. Now, take immediate action: log in to your plan, set or increase your contribution, and schedule an annual review. For deeper dives, subscribe to Humphrey Yang’s channel and explore his free templates—your future self will be grateful you started today.

Article inspired by: FINANCIAL ADVISOR Explains: Retirement Plans for Beginners (401k, IRA, Roth 401k/IRA, 403b) 2024 – Humphrey Yang, YouTube.