If You're Under 35, Make This One Investment Move in 2026
There’s no such thing as planning too soon for retirement. Even if you don’t intend to retire early, it doesn’t hurt to get ahead. In the worst case, you’ll be able to retire when you want. In the best case, you’ll have more money than you need — and can leave it behind for a loved one or a charity.
If you’re under 35, there is one move you may want to consider before almost anything else: maxing out your Roth IRA before contributing to a traditional 401(k) beyond the employer match. Here’s why — and when the alternative might make more sense.
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Why Maxing Out Your Roth IRA First Makes Sense
The biggest reason maxing out your Roth IRA first makes the most sense is the plan’s tax advantages. When you contribute to a Roth IRA, you don’t get an upfront tax deduction. But what you do get is tax-free growth and tax-free withdrawals once you retire.
Now, assume you retire in 30 years at age 65. That’s 30 years of tax-free growth.
“In most cases, this approach makes sense. Younger professionals are usually in a lower tax bracket, so it can be beneficial to pay taxes now while rates are low and enjoy tax-free growth later, when their income and tax rate may be higher,” said Yuri Nosenko, wealth advisor at Imperial Fund Asset Management.
In contrast, a 401(k) — and even a traditional IRA — will give you an upfront tax break. But you’ll have to pay taxes once you start withdrawing from the fund.
That’s not the only advantage of maxing out your Roth IRA first, though.
“Roth IRA also offers important flexibility compared to a 401(k),” Nosenko said. “You can withdraw your contributions at any time without taxes or penalties, and you typically have much more control over your investment options.”
When Maxing Out Your Roth IRA First Doesn’t Make Sense
Of course, not everyone shares the same financial situation. While one 35-year-old might find maxing out their Roth IRA first is a smart strategy, someone else might disagree.
“A Roth IRA is not always the best choice,” Nosenko said. “If someone already has a high income and is in a higher tax bracket today, it often makes more sense to use a traditional 401(k) or traditional IRA to reduce current taxes.”
You might want to switch priorities once your income reaches six figures, or when you’re in the IRS’s higher tax brackets — 24% to 35%. If you expect to be in a lower tax bracket upon retiring, reducing your taxes now -- through the 401(k) plan -- might be smarter.
Also note that age is somewhat arbitrary.
“Age 40-45 is not a meaningful cutoff,” Nosenko said. “The decision is not really about age — it’s about tax arbitrage: whether it’s better to pay taxes now or later, based on current and expected future tax rates."
Consider Contributing to Both
If you’re in a position to do so, why not contribute to both plans? The baseline 2026 maximum annual contribution limit is: $7,500 for IRAs and $24,500 for 401(k)s.
If you get employer-matching contributions, the 401(k) plan is even more appealing. That match is basically free money.
“Roth IRAs are often the best choice for young investors with long runways, but not always,” said Zach Bernsdorf, founder at Aspire Capital Management. “For someone under 35, I generally like funding the 401(k) up to the employer match first, then the Roth IRA, then back to the 401(k) as a general order of operations.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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