What is an Employer Account vs a Non-Employer Account?

The following applies to accounts that can be assigned to retirement financial plans because we can group such accounts as employer and non-employer accounts.  Please see our article on the complete list of accounts supported by ComposedPro. 

ComposedPro offers recommendations for both accounts INSIDE your employer (employer accounts) as well as OUTSIDE (non-employer accounts).  One of the main differences between the two types of accounts is whether the accounts are covered by the Employee Retirement Income Security Act (ERISA).   Another important distinction imposed by ComposedPro is whether the account has limited or unlimited investment options.*

Below is a summary of what ComposedPro considers Employer vs Non-Employer accounts:

Employer Accounts or Accounts INSIDE Your Employer

1. 401(k) - the most common type of employer account.
2. 403(b) - similar to a 401(k), this type of account may be available to employees of public schools or non-profit organizations, as well as certain ministers.
3. 457(b) - not covered by ERISA and not subject to the same early withdrawal penalties as a 401(k).
4. Thrift Savings Plan (TSP) - although not covered by ERISA, a TSP has some similar characteristics to a 401(k).  It is a retirement plan for Federal employees and members of the uniformed services, including the Ready Reserve.
5. SIMPLE IRA - a retirement plan for self-employed individuals, small-business owners, and any business with 100 or fewer employees that does not have another plan.

Non-Employer Accounts or Accounts OUTSIDE Your Employer

1. Roth IRA - a tax-exempt account, meaning that withdrawals are not subject to income taxes.  However, you do not receive an income tax benefit when contributing to the account. Unless an exception applies, withdrawals are subject to a 10% penalty if withdrawn before the age of 59 1/2.
2. Rollover (Roth) IRA - a distinction made for Roth amounts rolled from an employer account.
3. Beneficiary or Inherited Roth IRA - a Roth IRA inherited from another person.  Special rules apply to withdrawals.
4. Traditional IRA - a tax-deferred account, meaning that you receive an income tax benefit when contributing to the account, but will pay income taxes on withdrawals.  Withdrawals will be subject to income taxes.  Unless an exception applies, withdrawals are also subject to a 10% penalty if withdrawn before the age of 59 1/2.
5. SEP IRA - although this account is technically offered by employers, we do not consider it as such because of the unlimited investment options available similar to an IRA.
6. Beneficiary or Inherited IRA - a traditional IRA inherited from another person.  Special rules apply to withdrawals.
7. Individual Brokerage - a taxable account owned by one person.  Contributions to the accounts are not taxed, but any earnings are taxable.  If earnings are classified as long term, they are subject to more favorable capital gains tax rates.
8. Joint Brokerage - a taxable account owned by more than one person.  Contributions to the accounts are not taxed, but any earnings are taxable.  If earnings are classified as long term, they are subject to more favorable capital gains tax rates.
9. Custodial (UTMA / UGMA) - an account set up for the benefit of a beneficiary, and administered by a responsible person, known as a legal guardian or custodian, who has a fiduciary obligation to the beneficiary.
10. Trust - a legal arrangement set up by a grantor through which assets are held by a third party (the trustee) for the benefit of another party (the beneficiary), which may be an individual or a group.
     

*Accounts with unlimited investment options may have a few prohibited investments, such as collectibles or life insurance.