Guides · Retirement accounts

Retirement accounts explained

United States — 401(k)

A 401(k) is an employer-sponsored retirement account. The employee elects a percentage of pre-tax salary to defer into the account; that deferral reduces taxable pay for federal income tax, federal income tax withholding, and (for traditional 401(k) contributions) FICA. The contribution grows tax-deferred; you pay ordinary income tax when you withdraw it in retirement.

For tax year 2026, the IRS contribution limit is $24,500 for employees under 50, with a $7,500 catch-up for those 50+. The combined employee-plus-employer limit (for non-Solo plans) is $72,000. These figures come from the IRS annual cost-of-living adjustment process under IRC §402(g) and §415(c).

Two flavors:

• Traditional 401(k) — pre-tax. Reduces taxable pay now; taxed as ordinary income on withdrawal. Most common.
• Roth 401(k) — post-tax. You pay income tax on the contribution now; qualified withdrawals (after age 59½ and the 5-year rule) are tax-free. Less common but valuable for high earners expecting higher tax brackets in retirement.

Employer matching does not count against the employee contribution limit. A typical employer match is 50% of the first 6% of salary — a 100% return on the first 6% before any market performance.

United States — IRA and Roth IRA

An Individual Retirement Account (IRA) is held by the individual, not the employer. You open one with a brokerage; you choose the investments inside it.

Two flavors:

• Traditional IRA — pre-tax contribution (potentially deductible), tax-deferred growth, taxed as ordinary income on withdrawal. The deduction phases out at higher incomes if you (or your spouse) are covered by a workplace retirement plan.
• Roth IRA — post-tax contribution, tax-free growth, tax-free qualified withdrawal. Contribution phased out at higher incomes (currently $150,000-$165,000 single for 2026, per IRS — verify with the current Revenue Procedure).

Combined contribution limit across both IRAs is $7,500 for 2026, with a $1,100 catch-up for those 50+.

IRAs are not payroll-deducted — you contribute out of pocket. The deduction (for traditional IRAs) is claimed on Form 1040. Direct contribution to a Roth IRA has no income tax impact; the trade-off is the contribution limit and the income phase-out.

United States — HSA

The Health Savings Account is the most tax-advantaged account in the US system. It is a triple tax advantage:

1. Contributions are pre-tax (or pre-payroll-deduction via Section 125 cafeteria plan).
2. Growth is tax-free.
3. Qualified withdrawals for medical expenses are tax-free.

The catch: HSAs require a High-Deductible Health Plan (HDHP). For 2026, the HDHP minimum deductible is $1,700 self-only / $3,400 family. The maximum out-of-pocket is $8,500 self-only / $17,000 family.

HSA contribution limits for 2026 are $4,400 self-only and $8,750 family, with a $1,000 catch-up for those 55+.

After age 65, the HSA can be used for any purpose — qualified medical expenses remain tax-free; non-medical withdrawals are taxed as ordinary income (same as a traditional IRA). This makes the HSA effectively a "stealth IRA" with a 65+ escape hatch.

United States — SEP-IRA and Solo 401(k)

Self-employed workers have access to higher contribution limits through:

• SEP-IRA — Simplified Employee Pension. Employer-side contributions only, up to 25% of net self-employment income. Maximum $70,000 for 2026.
• Solo 401(k) — for a business with no employees (other than a spouse). Employee contribution plus employer contribution, combined maximum $70,000 for 2026, with the same catch-up provisions.

Both are detailed in the self-employment guide. They are out of scope for the TaxToNet calculator.

United Kingdom — workplace pension

UK workplace pensions are auto-enrolment schemes. Since 2012, every employer must auto-enrol eligible workers into a pension scheme and contribute at least 3% of qualifying earnings. The worker contributes 5% (default minimum), giving a total minimum contribution of 8% of qualifying earnings.

Two ways to contribute:

• Relief at source — the contribution is taken from after-tax pay. The scheme claims 20% basic-rate tax relief from HMRC and adds it to the pot. So a £100 contribution costs you £80 of take-home if you are a basic-rate taxpayer, £60 if you are a higher-rate taxpayer, £55 if you are an additional-rate taxpayer.
• Salary sacrifice — the contribution is taken from pre-tax pay. NI is also saved on the contribution. This is the most tax-efficient way to contribute. The employer's NI saving is typically shared with the employee as an enhanced employer contribution.

The annual allowance — the most you can contribute across all pensions in a tax year — is £60,000 for 2026/27, tapered to as low as £10,000 for high earners (above £260,000 adjusted income). Excess contributions trigger an annual allowance charge.

United Kingdom — SIPP

A Self-Invested Personal Pension is held by the individual, separate from any employer scheme. It receives the same tax relief as a workplace pension (20% basic-rate minimum; higher and additional-rate taxpayers claim the rest via Self Assessment). It allows full control over the investments held inside.

Useful for:

• Carry-forward of unused annual allowance from the previous three tax years.
• Side-hustle or self-employment income, where a SIPP can soak up profits tax-efficiently.
• Consolidating old workplace pensions into one pot.

Same contribution limits as workplace pensions, including the tapered annual allowance.

United Kingdom — ISA and LISA

ISAs are not pensions. They are tax-free wrappers that can be opened at any age (16 for Cash ISA, 18 for Stocks & Shares ISA). You don't get a deduction on contribution; you don't pay tax on growth or withdrawal.

Major types for 2026/27:

• Stocks & Shares ISA — up to £20,000 annual subscription across all ISAs combined. Invest in funds, shares, bonds. Tax-free growth, tax-free withdrawal.
• Cash ISA — same £20,000 limit. Tax-free interest.
• Lifetime ISA (LISA) — for first-time home purchase or retirement. £4,000 of the £20,000 annual allowance can go into a LISA. Government adds 25% bonus (£1,000/year maximum). Withdrawal for non-qualifying purposes triggers a 25% government charge.
• Junior ISA — for under-18s. £9,600 annual limit. Becomes the child's ISA at 18.

ISAs are particularly powerful for people who have already maxed their pension annual allowance and want to keep saving in a tax-efficient wrapper. They are not pension accounts and do not provide employer matching.

How each interacts with the calculator

The TaxToNet calculator is a clean baseline. Retirement contributions change take-home dramatically in real life. How each one interacts:

A worked example makes the difference concrete. A US single filer earning $80,000 contributing 5% to a traditional 401(k):

$1,316 of take-home plus $4,000 of pension pot — $5,316 total wealth uplift from a $4,000 contribution. That is a 33% match on day one, before any market growth. The reason pension accounts are powerful is exactly this arithmetic.

Related

• Marginal vs effective tax rate
• When a raise does not help
• Allowances vs deductions vs credits
• Self-employment tax basics
• How to read your payslip
• US take-home pay calculator
• UK take-home pay calculator
• Assumptions — what the calculator models and excludes