Lesson 3 of 4 · 2 minute read
Retirement accounts: 401(k)s and Roth IRAs
Two common ways to save for retirement, and why the account type matters.
Retirement accounts come with tax benefits that help your money grow. Think of the account as a container. Inside it, you choose investments, like an Index fundA fund that buys a little of many stocks or bonds at once, to match a whole market. It spreads out your risk and usually has low fees.More in the glossary.
401(k): through your job
A 401(k)A retirement savings plan through your job. Money comes out of your paycheck automatically, and your employer may add some too.More in the glossary takes money out of each paycheck automatically. Some employers add an Employer matchMoney your employer adds to your retirement account when you save in it. It's free money, so try to save enough to get all of it.More in the glossary. That’s free money, so try to put in at least enough to get all of it. Ask HR how your plan works.
Roth IRA: one you open yourself
A Roth IRAA retirement account you open yourself. You put in money you've already paid taxes on, and later you can take it out tax-free in retirement.More in the glossary is a retirement account you can open at a bank, credit union, or investment company.
- You put in money you’ve already paid taxes on.
- It grows without taxes. After age 59½, if the account has been open at least 5 years, you can take everything out tax-free.
- You can take out the money you put in (not the growth) at any time, without taxes or penalties. Still, it’s best to leave it for retirement.
- For 2026, you can put in up to $7,500, or $8,600 if you’re 50 or older. You can’t put in more than you earned from work that year.
There are income limits for Roth IRAs, but most people with low or moderate incomes can use one.
A tax credit for saving
If your income is low or moderate, you might also get a tax credit for saving for retirement, called the Saver’s Credit. Free tax-prep volunteers can help you check.
A retirement account is like a container with tax benefits. Inside it, you pick investments, like an index fund.
A 401(k)A retirement savings plan through your job. Money comes out of your paycheck automatically, and your employer may add some too.More in the glossary is a plan through your job. Money comes out of each paycheck. If your job adds a match, try to get all of it.
A Roth IRAA retirement account you open yourself. You put in money you've already paid taxes on, and later you can take it out tax-free in retirement.More in the glossary is an account you open yourself. You put in money you already paid taxes on.
In a Roth IRA, your money grows without taxes. Later in life, you can take it all out tax-free if you follow the rules.
If your income is low or moderate, you might get a tax credit for saving. Free tax-prep volunteers can help you check.