Investing for Retirement? Suze Orman Recommends These Accounts

You can't afford to pick the wrong retirement account when your future financial security is on the line.

To have financial security in retirement, most people need to invest throughout their life. And it helps to use the right accounts to do that. By choosing your retirement investment account strategically, you can maximize your tax breaks while ensuring you have a good array of options for which assets to buy.

Since there are several kinds of tax-advantaged retirement accounts, it can be confusing to decide which ones to make use of. Personal finance expert Suze Orman has some suggestions, though, which you may find helpful in picking which retirement accounts you put your money into.

Invest in a 401(k) if you have the option

On her blog, Orman first advises investing enough in a workplace 401(k) to earn your full employer match.

An employer match is free money you earn by making your own contributions to your account. Your employer might match a percentage of contributions -- like 50% or even 100% of the amount you contribute. But they typically cap the total amount they'll contribute for you at a specific percentage of your salary.

If you get an employer match, it's a good idea to claim all the free money you can. Say, for example, you get a 50% match up to 4% of a $50,000 salary. That would mean your employer would invest up to $2,000 on your behalf. If you invested $4,000 of your own money, you'd earn the entire $2,000 and would end up with $6,000 working for you for your $4,000 contribution.

It's otherwise virtually impossible to earn a risk-free 50% or 100% return on your investment, so it makes good sense that Orman recommends prioritizing earning your employer match. In fact, she even suggests maxing out your match over paying off high-interest debt such as credit cards more quickly. (Once you've earned your full match, however, Orman advises first focusing on paying expensive debt before investing in other retirement accounts.)

Invest in a Roth IRA

Once you've maxed out your 401(k) match (if you have that option from your job), and you've paid down high-interest credit card debt, Orman suggests putting any extra money you can afford to contribute for retirement in a Roth IRA.

If you have access to a Roth 401(k), on the other hand, she suggests using that for retirement contributions. This type of account gives you the benefits a Roth offers along with the ability to earn an employer match and benefit from the convenience and ease of a workplace plan.

Why does Orman recommend a Roth IRA?

Orman has recommended a Roth IRA for the remainder of your retirement savings after maxing out your match because she believes most people are better off using this type of account rather than a 401(k) alone.

A Roth IRA defers your tax savings until later. Instead of reducing your tax bill by being able to deduct the money you contribute each year from your taxable income, you invest in your Roth with after-tax dollars and save nothing on taxes up front. You get to take money out tax free as a retiree, though, unlike with a traditional 401(k), which has taxable withdrawals.

By deferring your tax savings, you end up with more money to live on as a senior since you don't lose part of your retirement distribution to taxes. You also could end up saving more over time on taxes if you're in a higher tax bracket later in life.

This approach has a lot of benefits, including the fact that if you open a Roth IRA with a brokerage firm, you can often get access to a broader array of investment options than a 401(k) offers. It's definitely worth considering Orman's advice when deciding where your retirement funds should go.