Although saving and investing for retirement looks different for everyone, the end goal is typically the same for most people: ensure you have enough saved to have as financially stress-free of a retirement as possible.
Most people’s default way to save for retirement is a 401(k) because it’s offered through their employer and can be done passively. However, a 401(k) isn’t the only retirement account you should embrace. A Roth IRA can be a great complement to a 401(k).
Each has its pros and cons, but I must admit that I prefer a Roth IRA over a 401(k) because of three key benefits: tax-free withdrawals in retirement, tons of investment options, and early withdrawal exceptions.
One thing that separates a Roth IRA from a 401(k) or traditional IRA is the tax break you receive. In a Roth IRA, you contribute after-tax dollars and then can receive tax-free withdrawals in retirement. The only criteria are that you must be 59 1/2 years old and made your first contribution at least five years ago.
To see how valuable this tax break can be, let’s assume someone invests $7,000 annually (the most allowed in 2025 for someone younger than 50) and averages 10% annual returns over 25 years.
At the end of that stint, your account balance would be close to $400,700, while only personally contributing $140,000. Since those investments happened in a Roth IRA, the full amount would be yours tax-free, avoiding capital gains taxes on roughly $260,700.
Generally speaking, your investment options in a 401(k) will include some or all of the following:
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Your company’s stock (if it’s a public company)
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Market cap-based funds (large, mid, and small)
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Target date funds
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An assortment of bond funds
There are a few exceptions based on your company’s specific plan, but this is typically what most plans offer.
The beauty of an IRA (both Roth and traditional) is that you can invest in almost anything you could in a regular brokerage account. A recent IPO company you’ve been following since its start-up days? Yup. A niche exchange-traded fund on an industry you believe in? You got it. Real estate investment trusts (REITs)? Consider it done.
Admittedly, some people prefer fewer options because it makes investment decisions easier. That’s understandable, and there’s nothing wrong with that. However, if you prefer to be more hands-on and tailor a retirement account to fit your goals and risk tolerance better, the options of a Roth IRA are right up your alley.
