You may not think that athletes earning millions of dollars would have to worry about outliving their retirement savings. But the reality is that a professional athlete’s retirement could last 30 years or more, so the savings needed to fund that period is far greater than the average person’s.

The first step toward a secure retirement for MLB players is to maximize their Vanguard 401(k).

In addition to a 401(k) the IRS offers many retirement plans. The chart below highlights the primary plans available to professional athletes during their playing career and the rules surrounding each:

Plan Type 401(k) Ind. 401(k) IRA Roth IRA SEP-IRA
Who it’s for Eligible for team plan Not eligible for team plan / Significant off-the-field income Not eligible for team plan / Minimal off-the-field income Not eligible for team plan / Minimal off-the-field income Eligible for team plan / Off-the-field income
Key Advantages Max tax deferral and employer contributions 401(k) with potentially higher contribution limit than SEP-IRA Retirement tax deferral Tax-free growth Retirement tax deferral in addition to 401(k)
Eligible Income Compensation Compensation / Off-the-field Income Compensation Compensation Off-the-field Income
2015 Salary Deferral Contribution Limit $18,000 $18,000 $5,500 $5,500 Not applicable
2015 Profit Sharing Contribution Limit Not applicable Up to 25% of compensation up to a max of $53,000 Not applicable Not applicable Up to 25% of compensation up to a max of $53,000
Withdrawal Age 10% penalty if under 59 1/2 10% penalty if under 59 1/2 10% penalty if under 59 1/2 10% penalty on earnings if under 59 1/2 10% penalty if under 59 1/2
Plan Setup Deadlines Contribute by end of season Establish by December 31 Establish by tax filing deadline Establish by tax filing deadline Establish by tax filing deadline

The timing of contributions and eligibility are unique to each athlete throughout their career. It is essential to evaluate each plan on an annual basis with your CPA or Wealth Manager in order to maximize tax deferral while earnings are at their peak. Tax rates, cash flow, and eligibility should all be considered together to determine which plan is appropriate and when.

It is also important to note that planning doesn’t stop once the athlete’s playing career is over. Deferrals against ongoing income or conversions to after-tax accounts, when appropriate, throughout an athlete’s post-playing period can further add to net retirement income. Retirement planning begins as soon as an athlete signs their first contract, continues through to that first distribution later in life, and reaches far beyond just the employer provided 401(k) plan.