From 401(k) plans to 403(b) plans, there is a long list of retirement savings accounts you can potentially tap. But there's one in particular that I believe can be the best option for many people. It requires a little extra work, but the long-term benefits will be tremendous.
If you can, use this one powerful retirement savings account
My favorite retirement savings account is a Roth 401(k). It blends the best advantages of a traditional 401(k) plan and a Roth IRA.
Like other 401(k) plans, a Roth 401(k) features a $23,000 contribution limit for 2024 ($30,500 for those aged 50 and older). That's far above the 2024 Roth IRA contribution limit of $7,000 (or $8,000 for those 50 and older).
Compared to a Roth IRA, Roth 401(k)s simply let you stash away more each year, although it should be noted that maxing out your Roth 401(k) does not prevent you from also contributing to a Roth IRA. And if you have access to a Roth 401(k) through your employer, there's a good chance your workplace also offers a matching contribution. For example, some employers match dollar for dollar up to a certain percentage of your salary. This is free money you should consider part of your compensation -- when a company match is available, it's almost never a good idea to pass it up.
Finally, as the name suggests, a Roth 401(k) is a Roth account, meaning it's funded using after-tax dollars. This means you pay taxes upfront, but once invested, the money grows tax free. When it's time to withdraw, those funds are also exempt from taxes.
While circumstances can sometimes favor investing pre-tax dollars versus post-tax dollars, what a Roth offers is simplicity and peace of mind. What you see is what you get, taking the guesswork out of how much you have saved for retirement. The large majority of employers now offer a Roth 401(k) option, so if you have access to one, consider how it can serve your retirement plan.
