If you are starting to invest for retirement, you will quickly meet two accounts: the Roth IRA and the 401(k). Both are tax-advantaged, both are designed for long-term growth, and both can make you wealthy over decades. But they work very differently, and the order you fund them in can be worth tens of thousands of dollars over your working life. Here is a clear, practical guide to choosing between them — and the simple priority order that most beginners should follow.

A 401(k) is offered through your employer. You contribute money from your paycheck before tax, which lowers your taxable income today, and the money grows tax-deferred until you withdraw it in retirement, when you pay tax on it as income. The biggest advantage of a 401(k) is the employer match: many companies match a percentage of your contributions, often 50 percent of the first 6 percent of your salary. That match is free money — an instant 50 to 100 percent return that no investment can reliably beat. The 2026 contribution limit is $24,500, or $32,500 if you are 50 or older. The main downside is limited investment choice: you can only pick from the funds your employer offers.

A Roth IRA is an individual account you open yourself at a brokerage like Fidelity or Vanguard. You contribute money you have already paid tax on, the money grows tax-free, and qualified withdrawals in retirement are completely tax-free — you never pay tax on the growth. The 2026 contribution limit is $7,500, or $8,600 if you are 50 or older, and income limits apply: single filers earning under $153,000 can contribute the full amount. The Roth IRA's biggest advantages are flexibility and control: you can choose any investment, withdraw your contributions (not earnings) at any time without penalty, and there are no required minimum distributions in retirement. For young investors in a low tax bracket, the Roth IRA is often the best account available.

The optimal order for most beginners is simple. First, contribute enough to your 401(k) to capture the full employer match — this is a guaranteed return that beats everything else. Second, max out your Roth IRA, because tax-free growth for decades is enormously valuable and the contribution limit is relatively low. Third, go back to your 401(k) and increase contributions beyond the match, up to the annual limit. Fourth, if you still have money to invest, open a taxable brokerage account for goals before retirement age. This order captures the free money first, then the best tax treatment, then the highest contribution limits, and it works for the vast majority of people earning a regular salary.

There are exceptions. If your employer offers no match at all, the Roth IRA usually comes first, because it offers better investment choices and tax-free withdrawals. If you are in a very high tax bracket now and expect to be in a lower one in retirement, a traditional IRA or extra 401(k) contributions may beat the Roth, because the upfront tax deduction is worth more. If you are self-employed, you have different options — a SEP IRA or Solo 401(k) — that offer much higher contribution limits. And if you expect your income to rise significantly, contribute to the Roth IRA now while you are still eligible, because the income limits may lock you out later. The priority order is a starting point, not a law — adjust it to your situation.

The most expensive mistake is not contributing enough to get the full employer match — that is literally leaving free money on the table. The second is opening a Roth IRA and never investing the money inside it: an account is a container, not an investment, and cash sitting uninvested in a Roth IRA earns nothing. The third is choosing expensive funds: stick to low-cost broad index funds with expense ratios under 0.10 percent, and avoid funds charging 1 percent or more. The fourth is raiding retirement accounts early — withdrawals before age 59 and a half usually trigger taxes and a 10 percent penalty. Open the right accounts, fund them in the right order, invest in cheap index funds, and let time do the heavy lifting.