If you’re in your 20s or early 30s and ready to start investing for retirement (go you!), you’ve likely heard about two heavy hitters: the Roth IRA and the 401(k). But which one should you start with? And do you really need both?
Let’s break it down in plain English—because future you is depending on present you to get this right.
First, the Quick Definitions
What’s a 401(k)?
A 401(k) is a retirement savings plan offered by your employer. You contribute money directly from your paycheck—before taxes—which lowers your taxable income now.
What’s a Roth IRA?
A Roth IRA (Individual Retirement Account) is something you open on your own (not through work). You contribute after-tax money, but your money grows tax-free, and you can take it out tax-free in retirement.
Roth IRA vs. 401(k): How They Stack Up
| Feature | 401(k) | Roth IRA |
|---|---|---|
| Tax Treatment | Pre-tax contributions (tax break now) | Post-tax contributions (tax break later) |
| Tax on Withdrawals | Taxed in retirement | No taxes in retirement |
| Contribution Limit | $23,000 in 2025 (if under 50) | $7,000 in 2025 (if under 50) |
| Income Limits | No income cap | Income limit applies to contribute |
| Employer Match? | Yes, often | No |
| Who Opens It? | Your employer | You |
Why a Roth IRA Is a Smart Starting Point in Your 20s
If you’re early in your career and not earning a huge salary yet, a Roth IRA is often the best place to start. Why?
- You’re likely in a low tax bracket now, so paying taxes today (Roth) is better than later.
- Your money has decades to grow tax-free.
- You can withdraw your contributions (not earnings) anytime, penalty-free.
- You’re not limited to your employer’s investment options—you choose your own.
📌 Pro Tip: Open a Roth IRA through platforms like SoFi Invest or Fidelity for low fees and beginner-friendly tools.
When to Start with a 401(k)
If your employer offers a match, take advantage of it—even if you’re focusing on a Roth IRA.
Example:
If they match 100% of your contributions up to 4% of your salary, that’s free money. Don’t leave it on the table.
Start by contributing just enough to get the full match, then fund your Roth IRA. If you still have room in your budget after maxing your Roth, go back and increase your 401(k) contributions.
The Ideal Combo
Here’s a simple order of operations:
- Get the full 401(k) match from your employer (free money!)
- Max out a Roth IRA if you’re eligible
- Add more to your 401(k) once your Roth is maxed
If you do this consistently throughout your 20s and 30s, you’ll be shocked how fast your wealth grows. 🚀
Not Sure If You Qualify for a Roth IRA?
In 2025, you can contribute the full amount to a Roth IRA if you earn:
- Under $146,000 (single)
- Under $230,000 (married filing jointly)
Over that? You may qualify for a Backdoor Roth IRA—a legal workaround we’ll cover in an upcoming article.
Don’t wait!
If you’re just getting started, go with the Roth IRA—especially if you’re young, early in your career, and want flexibility with your money. But don’t ignore your 401(k), especially if there’s a match.
Start where you are. Automate your contributions. Watch your future self thank you.
✨ Want to get started today? Check out the beginner-friendly Guide to Investing: 10 Must-Do Moves for Beginners.
