How to Invest for Retirement: 401(k), Roth IRA and Best Retirement Investments
2026 contribution limits, the smartest order to fund your accounts, what to invest in at every age and how much you really need.
Key takeaways
- In 2026 you can contribute up to $24,500 to a 401(k) and $7,500 to an IRA, plus catch-up contributions from age 50.
- A proven order: get the full employer match, then fund a Roth or traditional IRA, then increase your 401(k) contributions.
- Low-cost target-date funds or a simple mix of index funds are the best retirement investments for most people.
- Starting early matters enormously: $300 a month from age 25 can grow to about twice as much as the same plan started at 35.
Retirement is the longest-term goal most people ever invest for. That is good news: a long time horizon lets compounding work, smooths out market crashes and turns modest monthly contributions into a substantial nest egg. The decisions that matter most are which accounts you use, what you invest in and how consistently you contribute. This guide focuses on the US system; the principles apply almost everywhere.
Retirement account limits for 2026
| Account | Standard limit | Age 50+ | Notes |
|---|---|---|---|
| 401(k), 403(b), most 457 plans, TSP | $24,500 | $32,500 | Ages 60–63 may contribute up to $35,750 (catch-up of $11,250) |
| Traditional or Roth IRA | $7,500 | $8,600 | Combined limit across all your IRAs |
Source: IRS limits for 2026. Employer contributions, such as matching, come on top of your own 401(k) limit, up to an overall cap.
Two rules worth knowing for 2026:
- Roth IRA income limits: the ability to contribute phases out between $153,000 and $168,000 of modified adjusted gross income for single filers, and between $242,000 and $252,000 for married couples filing jointly.
- Roth catch-up rule: from 2026, workers aged 50 or older who earned more than $150,000 in FICA wages from their employer in the prior year must make their 401(k) catch-up contributions as Roth (after-tax) contributions.
Traditional vs. Roth: when do you want to pay the tax?
- Traditional 401(k) or IRA: contributions may reduce your taxable income today; withdrawals in retirement are taxed as income.
- Roth 401(k) or Roth IRA: you contribute after-tax money; qualified withdrawals in retirement, including all growth, are tax-free.
As a rule of thumb, Roth contributions make more sense if you expect to be in a similar or higher tax bracket in retirement, which is common for younger workers early in their careers. Traditional contributions are attractive if your tax rate is high now and likely lower later. Many people use both to keep flexibility. We compare the accounts side by side in Roth IRA vs 401(k).
The smart order for funding your accounts
- Contribute enough to your 401(k) to get the full employer match. A typical match of 50% to 100% on part of your salary is an instant return no investment can reliably beat.
- Pay off high-interest debt such as credit cards.
- Fund a health savings account (HSA) if you have an eligible high-deductible health plan; it offers tax benefits on the way in and, for medical expenses, on the way out.
- Fund a Roth or traditional IRA, which usually offers a wider and cheaper choice of investments than a 401(k).
- Go back to your 401(k) and raise contributions toward the $24,500 limit.
- Invest additional savings in a taxable brokerage account.
The best retirement investments
Target-date funds
A target-date fund (for example "2060 Fund") holds a diversified mix of stock and bond funds and gradually shifts toward bonds as the target year approaches. It is the simplest complete solution: one fund, automatic rebalancing. Compare fees: low-cost index-based target-date funds often charge around 0.10% or less, while some actively managed versions cost several times more.
Broad index funds
If you prefer to build your own mix, three funds can cover the whole market: a US stock index fund (such as an S&P 500 or total market fund), an international stock index fund and a bond index fund. See our guide to the best ETFs for the long term.
Bonds and cash
Bonds become more important as retirement approaches. With 10-year Treasury yields around 5.3% in late September 2026, high-quality bonds offer meaningful income for the first time in many years. Read high-yield investments for an overview.
What to be careful with
- Funds with expense ratios of 1% or more.
- Large positions in your employer's stock.
- Annuities or products you do not fully understand, especially with high commissions.
- Speculative assets such as individual crypto coins as a core holding. See Is Bitcoin a good investment?.
Asset allocation by age
| Age | Stocks | Bonds and cash | Focus |
|---|---|---|---|
| 20s–30s | 80%–90% | 10%–20% | Growth; time to recover from crashes |
| 40s | 70%–80% | 20%–30% | Growth with some stability |
| 50s | 60%–70% | 30%–40% | Reduce sequence-of-returns risk |
| 60s and in retirement | 40%–60% | 40%–60% | Income and stability, but still growth for a long retirement |
These are common starting points, not rules. Your risk tolerance, other income such as Social Security or a pension, and your health all matter.
How much do you need to retire?
A popular planning tool is the 4% rule: withdraw 4% of your portfolio in the first year of retirement and adjust that amount for inflation afterward. Its creator, financial planner Bill Bengen, updated his research in 2025 and now considers about 4.7% a safe starting rate for a diversified portfolio over 30 years.
| Annual income needed from savings | Portfolio at 4% | Portfolio at 4.7% |
|---|---|---|
| $24,000 ($2,000/month) | $600,000 | ≈ $511,000 |
| $40,000 | $1,000,000 | ≈ $851,000 |
| $60,000 | $1,500,000 | ≈ $1,277,000 |
Subtract expected Social Security or pension income from your spending first; only the remainder must come from your portfolio. The rule is a guideline, not a guarantee.
Why starting early matters so much
| Plan | Total contributed | Value at 65 (7% a year) |
|---|---|---|
| $300/month from age 25 | $144,000 | ≈ $787,000 |
| $300/month from age 35 | $108,000 | ≈ $366,000 |
| Max IRA ($7,500/year) for 35 years | $262,500 | ≈ $1,109,000 |
Illustrative constant returns before taxes and fees. Actual returns vary.
Common retirement investing mistakes
- Missing the employer match by contributing too little.
- Cashing out a 401(k) when changing jobs, which usually triggers income tax and, before age 59½, a 10% penalty. Roll it over instead.
- Being too conservative too early, for example holding mostly cash in your 30s.
- Panic selling in a downturn. Market crashes are normal over a 40-year career.
- Ignoring fees, which compound against you for decades.
- Forgetting required minimum distributions from traditional accounts, which currently start at age 73.
Frequently asked questions
How much should I save for retirement?
A common guideline is 15% of your gross income, including any employer match. If you start later, you may need to save more.
Is a Roth IRA or a 401(k) better?
Ideally both: first the 401(k) up to the match, then a Roth IRA, then more 401(k). See our detailed comparison of Roth IRA vs 401(k).
What is the best investment for retirement?
For most people, a low-cost target-date fund or a diversified mix of stock and bond index funds. The best choice is one you can hold through market ups and downs.
Can I contribute to both a 401(k) and an IRA?
Yes. The limits are separate. If you are covered by a workplace plan, deducting traditional IRA contributions may be limited at higher incomes.
Is it too late to start saving at 50?
No. Catch-up contributions let you save $32,500 in a 401(k) and $8,600 in an IRA in 2026, and even 15 years of disciplined saving can make a large difference.
