There are several types of accounts to choose from to invest for your retirement. But experts say if you’re young, it may be especially wise to choose the Roth option first.
“Typically, the younger you are, the more sense Roth thinking makes,” says Patrick Huey, a certified financial planner and owner of Victory Independent Planning in Portland, Oregon.
Unlike 401(k)s and traditional individual retirement accounts, which are funded with pre-tax dollars, Roth 401(k)s and Roth IRAs are funded with funds that have already been taxed. Instead, your investments grow tax-free, and once you reach age 59 1/2, you no longer owe taxes or penalties on qualified withdrawals.
Although we can’t predict the future accurately, Huey says, “We need to look at how things usually go and plan accordingly.” As people get older, they tend to take on higher-paying positions and, as a result, pay higher taxes.
Huey said Roth accounts typically allow younger investors to avoid higher taxes later on by paying taxes now in a lower bracket.
Additionally, because the stock market has historically trended up and younger investors are more likely to stay invested for decades, Huey says you can generally keep more of your earnings in a Roth account because withdrawals from a traditional 401(k) or IRA are taxed as ordinary income.
“Financial planning is not about knowing, it’s about making educated assessments,” Huey says.
Start with a Roth 401(k), then a Roth IRA
If your company has a Roth 401(k) option, start there, say Huey and Jamie Bosse, both certified financial planners and senior advisors at CGN Advisors in Manhattan, Kansas.
A Roth 401(k) is an employer-sponsored, after-tax retirement account with no income limits. Bosse says it’s generally the easiest to manage because you can pre-select the percentage you want to contribute and your contributions are automatically deducted from your paycheck.
Plus, your company may match up to a certain percentage of your contributions, so you need to take advantage of “free money,” Bosse says.
You can contribute up to $23,500 in 2025 and $24,500 in 2026 to your 401(k) plan. Investors aged 50 and over can make an additional $7,500 in catch-up contributions this year and $8,000 in 2026, while investors aged 60 to 63 can instead make up to $11,250 in catch-up contributions.
If you work for yourself, your company doesn’t have a Roth 401(k) option, or you have extra money, consider contributing to a Roth IRA, Bosse says.
A Roth IRA is an individual account that you open on your own, but eligibility begins to phase out at higher income levels. You can contribute up to $7,000 in 2025 and $7,500 in 2026, and investors age 50 and older can contribute an additional $1,000 this year and $1,100 in 2026 as catch-up contributions.
With a Roth IRA, you can withdraw your contributions at any time without taxes or penalties, but you can’t withdraw your earnings, giving you more flexibility in case of an emergency. Roth 401(k)s may offer loan options, but they typically have stricter early withdrawal rules. If you make a withdrawal before age 59½, penalties may apply and your earnings may be taxed as ordinary income.
The sooner you start building up funds for retirement, whether it’s a 401(k) or IRA, the more time you have, Bosse says. It’s also wise to consult a trusted financial professional who can help you find the best account for your individual situation.
And if you can, automate your giving so you don’t have to actively think about moving money every month, she says.
“There’s a lot of potential in your 20s,” Bosse says. “The extra money should be invested in future growth.”
Earn more and get ahead with CNBC’s online courses. Black Friday has begun! Use coupon code GETSMART to get 25% off select courses and 30% off exclusive bundles. Offer valid from November 17th to December 5th, 2025.
Plus, sign up for the CNBC Make It newsletter for tips and tricks to succeed at work, money, and life, and request to join our exclusive community on LinkedIn to connect with experts and colleagues.
