What’s The Best Way To Save For Retirement In Your 20s?

If you know you’re supposed to be investing, but just aren’t sure where you’re supposed to be doing that investing, you’re not alone. And if simply the word investing sends you into a tailspin of anxiety and confusion, you’re likely in the majority. Your 20s are the best time to learn the difference between a Roth IRA and brokerage investing because the earlier you get started, the more money you’ll make in the long term.

There are, however, a few differences between the two. For one, Roth IRAs are individual retirement accounts, and brokerage investing involves depositing money into the stock market to earn large gains over time, potentially.

Of course, like with anything else, the best one for you will depend on several factors, like income amount, long-term goals, and more. The goal here should be learning as much as you can about all of your options so you can make the most well-informed decision for yourself.

Here’s everything you need to know about how you should be thinking of retirement in your 20s.

What Is A Roth IRA?

According to Katie Gatti Tassin, founder of Money with Katie, a personal finance media company, and author of Rich Girl Nation, “One way you can think about this is the investments are the seeds that you plant, and the investment accounts are the pots you plant them in. So the market investments, like the S&P 500 [a conglomerate of the top and highest performing companies like Amazon, Apple, etc.], that's the seed, that's the investment.” It’s important to note that market investing and brokerage investing are often used interchangeably.

“A Roth IRA is more like the pot,” says Tassin. “So it's not that these things are in opposition with one another or they're an either-or; you are going to probably invest in the S&P 500 within your Roth IRA.”

So what does this mean? A Roth IRA is a personal retirement account where you can deposit money into it that has a limit that is set by the Internal Revenue Service (IRS) according to your age and income levels. As of 2026, you can’t make more than $153,000 a year as a single person if you want to invest in a Roth IRA, and you have an annual cap of investing $7,500 per year if you’re under 50 years old.

However, once you open up a Roth IRA and start making your investments of up to $7,000 per year, your work is not done. You must do something with the money sitting in your account, like invest it in the stock market. It’s not just a high-yield savings account that’s going to make your money grow if you don’t make any actionable investments within it. So how do you know which stocks to invest in? This is where it gets a bit trickier. Most people recommend keeping it simple and just investing in the S&P 500. I like this explainer video that breaks down how to attain a Roth IRA step by step, which suggests setting up a recurring monthly payment, and a few stock buying options for beginners.

What Is A Brokerage Investment?

Before deciding which is better for you, let’s talk about brokerage investing. A brokerage investment is also an investment in the stock markets and/or S&P 500 companies, but it is not strictly for retirement. You can decide to pull out your money at any time (whereas Roth IRAs have an age limit of 59.5 years old). There is also no limit to the amount of money that you can invest in the stock markets through this avenue.

The biggest reason why there’s no limit is that when you decide to take money out of your brokerage investment, you will be taxed for it, whereas a Roth IRA is a tax-free retirement account.

“If you're investing $1,000 per month for 40 years in these two accounts, the difference in outcome is that the pre-tax 401(k) [or Roth IRA] will have $5 million in it, and the brokerage account will have $3 million in it,” says Tassin. “That's just the difference from taxes compounding. So you've got a $2 million gap solely from that 1% or 2% per year being shaved off.”

So basically, learning how to invest in and prioritize a Roth IRA investment account will help you gain more untaxed income in the long run. “I think the big headline about why those pre-tax or Roth accounts are so valuable is because they're shielding your compounding growth over that really long term from a headwind that's going to make that money grow more slowly.”

So, Which Should You Go For?

If the goal is opening up an account that you can access strictly in retirement, Tassin recommends looking at a Roth IRA because it will be tax-free.

“I do think it's worthwhile to take advantage of a 401(k) or a Roth IRA first and foremost, and make sure that you're getting that tax advantage,” she says. “And then thinking in phase two about... ‘OK, now that I've got that account growing, I've got my contribution going, I feel good about it, and now I'm ready to move to the next step.’ That's probably when I would start looking at the brokerage accounts.”

Of course, if you’re making over $150,000 per year, you will already be exempt from being able to have a Roth IRA in the first place. If this is the case, you might be more interested in sticking with your 401(k), plus brokerage investments on your own. “I think high-income people should probably prioritize the traditional 401(k) contributions,” says Tassin. “And if you have a median income or below, I'd probably prioritize the Roth IRA.”

Simply put: “Roth IRAs are the most valuable, because they're going to grow tax-free forever,” says Tassin. At this point, it’s helpful to ask yourself, “Am I going to be better off paying my tax rate now, or paying my tax rate in the future?”

“If you're a higher earner now, you want to defer those taxes into the future when you're going to have less earnings,” says Tassin. But if you’re making less money now — like many people just out of college or in their early 20s — Tassin advises paying the tax bill now so you don’t have to deal with a bigger tax bill later on, when your investments have grown and are worth more than what you’re making currently.