Millennials, who were born between 1981 and 1996, have a prime opportunity to save for retirement. With about 25 to 40 years left until they’ll reach retirement age, millennials can leverage that remaining time to maximize the value of their investments.
But as a millennial, it’s important for you to choose the right type of retirement accounts that will work well for your age and retirement goals. Several types of accounts can help you maximize your retirement funds.
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401(k) Accounts
A 401(k) is an employer-provided retirement account that can help you to quickly build up retirement investments. When you sign up for a 401(k), you can choose to automatically deposit a percentage of your salary from each paycheck into the account. You’ll also have the chance to choose your account’s specific investments, which typically include stock and bond mutual funds. Employers often will match a portion or even all of your contribution up to a set amount, which can help you to quickly maximize your investments.
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According to Bridget Grimes, certified financial planner (CFP), president and founder of WealthChoice LLC, now is the time for millennials to leverage 401(k) plans.
“Many folks have matching employer contributions, so you want to make sure you are contributing at least enough to receive the full employer match,” Grimes explained. “We encourage our clients to contribute the maximum to their 401(k) accounts.” Annual contribution limits can change each year; for 2025, the IRS has increased the contribution limit to $23,500.
Roth IRA and Roth 401(k) Accounts
Matt Hylland, financial planner at Arnold & Mote Wealth Management, recommended that millennials invest in Roth IRA or Roth 401(k) accounts. While traditional 401(k) account contributions are pre-tax, meaning the contributions can reduce your taxable income, any withdrawals you make are taxed. If you contribute to a Roth 401(k), those contributions are made after taxes. You won’t receive a tax deduction for those contributions, but when you withdraw from your account, those withdrawals won’t be taxed.
The same is true of a Roth IRA, which is an individual retirement account that allows you to make after-tax contributions.
“Roth IRAs or Roth 401(k)s [sic] are typically the best retirement accounts for millennials,” Hylland explained. “While Roth savings do require savers to pay more taxes now, it may be beneficial to pay a lower tax rate now and switch to pre-tax savings later in your career when you are at your peak earnings.”
Additionally, Roth savings accounts give you more flexibility in being able to access your money before retirement. For example, since you’ve already paid taxes on your contributions, you can withdraw your contributions from a Roth IRA, at any time without paying penalties or taxes. According to Hylland, a Roth account may be ideal for millennials who might be hesitant to lock up their money in a retirement account for the next few decades.
Health Savings Accounts
You can also enjoy numerous long-term advantages by investing in a Health Savings Account (HSA), which is part of a high-deductible health insurance plan. “HSAs provide tax deductions now for contributions and the assets in the HSA can grow and be withdrawn tax-free if the assets are used to pay for medical expenses later,” Hylland explained. “Since health expenses are one of the largest expenses for retirees, building up an HSA early in life can have great benefits.”
How To Maximize Retirement Contributions
Before you start investing, it’s important to understand how much you can comfortably afford to set aside. You will need to take a look at your finances, including your cost of living, to determine how much you have left to invest.
“Knowing what your after-tax monthly pay is, then what your fixed expenses are, leaves you with what we call distortionary spending,” explained Grimes. “We encourage all our clients to know how much their living expenses are so that they can earmark a portion of this discretionary money to goals like retirement.”
To ensure that you regularly make contributions to your retirement accounts, consider automating your retirement savings. While your 401(k) contributions will come directly from your salary, you can set up contributions to additional accounts like an IRA to be automated and recurring.
How To Get Started With Investing
If you haven’t previously contributed to a retirement account, start by checking in with your employer to review your employer retirement plan options. If you have extra money that you would like to contribute or if you’re self-employed, you can open an account like an IRA.
A financial advisor can also help you to explore and understand your retirement options, but it’s important to understand how different financial advisors are compensated.
“Look for a ‘fee-only’ financial advisor, who does not receive commissions or kickbacks from any product or investment they recommend, to help ensure you are working with an advisor that is not just trying to sell you a product for their benefit,” Hylland said. He suggested using The National Association of Personal Financial Advisors or The XY Planning Network to find an advisor who is a good fit for you.
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This article originally appeared on GOBankingRates.com: The Best Types of Retirement Accounts for Millennials To Open This Year
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