Here’s a question worth doing the math on: what does it actually cost to wait six years before you start saving for retirement?
Take a worked example — not a real person, just the arithmetic. Someone at 24 is offered a 401(k) with a 4% employer match and doesn’t sign up. “I’ll do it next year,” they tell themselves. “I need the money now.” They say that for six years. By the time they reach 65, those six years of “I’ll do it later” will have cost roughly $200,000 in retirement savings — not because of the contributions they skipped, but because of the compound growth on both the contributions and the match. We’ll show that math below so you can see exactly where the number comes from.
If you’re in your twenties and skipping your 401(k), or haven’t opened a Roth IRA yet, this guide is written for you.
The absolute basics (2 minutes, promise)
401(k) — your employer’s retirement plan
Your employer offers this. You pick a percentage of your paycheck — say 6% — and that money goes into an investment account before taxes touch it. If you earn $80,000 and contribute 6%, that’s $4,800/year going straight into investments. Your taxable income drops to $75,200, so you pay less in taxes right now.
The catch: you pay income taxes when you withdraw in retirement. The government lets you skip taxes now, but they collect later.
The best part: employer match. Many companies match some percentage of what you contribute. A “100% match up to 4%” means if you put in 4% of your salary, your employer puts in another 4%. That’s a 100% instant return on your money before it’s even invested. There is no investment on Earth that guarantees a 100% return. None. The match is the closest thing to free money that exists in personal finance.
Roth IRA — your own tax-free retirement account
You open this yourself at a brokerage (Fidelity, Schwab, Vanguard). The money you put in has already been taxed — no tax break now. But everything grows tax-free, and when you withdraw in retirement, you pay zero taxes. Zero on the contributions, zero on the growth, zero on the withdrawals.
If you put in $7,000 today and it grows to $70,000 over 30 years, you take out $70,000 without owing a dime. With a 401(k), that $70,000 withdrawal would be taxed as income — potentially $15,000-$20,000 in taxes.
The one-line version
401(k): tax break now, pay taxes later. Roth IRA: no tax break now, tax-free forever later.
The cost of waiting (this is the part that stings)
Here’s a worked example — starting at 24 vs starting at 30, assuming $400/month contributions and an 8% average annual return (a common long-run planning assumption; your actual return will vary):
| Start age | Monthly contribution | Total contributed by 65 | Value at 65 | Growth |
|---|---|---|---|---|
| 24 | $400 | $196,800 | $1,295,000 | $1,098,200 |
| 30 | $400 | $168,000 | $798,000 | $630,000 |
| Difference | $28,800 | $497,000 | $468,200 |
Read that last row. In this example, the saver contributed $28,800 less by starting six years late. But the difference in final value is $497,000. That’s not a typo. Almost half a million dollars in lost growth — from six years of doing nothing.
Now add the employer match that got skipped. At an $80K salary with a 4% match, that’s $3,200/year in free money left on the table. Over six years, that’s $19,200 in missed match, plus its compound growth. That pushes the total cost of the delay to roughly $600,000 by retirement — still the same worked example, same 8% assumption.
Want to run your own numbers? Our compound interest calculator shows the growth of monthly contributions at any rate and compounding frequency.
The right order to fund your accounts
People overcomplicate this. Here’s the order that works for most savers:
Step 1 → Get the full employer match in your 401(k). If your company matches 4%, contribute at least 4%. This is non-negotiable. Skipping the match is the same as turning down a raise.
Step 2 → Max out a Roth IRA ($7,000/year in 2026). That’s about $583/month. Tax-free growth forever. If you can only do $100/month, that’s fine — open it and start. Every dollar counts.
Step 3 → Go back and increase your 401(k). Beyond the match, push toward 15% of your gross income. The 2026 limit is $23,500 ($31,000 if you’re 50+).
Step 4 → If you’ve maxed both ($23,500 + $7,000 = $30,500), congratulations — you’re saving aggressively. Excess goes into a taxable brokerage account.
Most people never get past Step 2, and that’s perfectly fine. Steps 1 and 2 alone will build serious wealth over a career.
401(k) vs Roth IRA — the actual comparison
| Feature | 401(k) | Roth IRA |
|---|---|---|
| Who offers it | Your employer | You open it yourself |
| 2026 contribution limit | $23,500 ($31,000 if 50+) | $7,000 ($8,000 if 50+) |
| Tax treatment | Pre-tax going in, taxed on withdrawal | After-tax going in, tax-free on withdrawal |
| Employer match | Yes (if offered) | No |
| Income limits | None | Phase-out starts at $150K single / $236K married |
| Investment options | Limited to what your plan offers | Unlimited — any stock, ETF, bond, mutual fund |
| Early withdrawal | 10% penalty + taxes before 59½ | Contributions (not gains) can be withdrawn anytime, penalty-free |
| Required minimum distributions | Yes, starting at 73 | No — you never have to withdraw |
| Best if | You’re in a high tax bracket now | You expect higher taxes in retirement |
Where to open a Roth IRA (and what to actually invest in)
Three brokerages worth considering. All have no account minimums and no fees for standard accounts:
- Fidelity — frequently cited as the best all-around platform, with excellent index funds (FZROX has a 0% expense ratio — literally free) and a strong app.
- Charles Schwab — solid runner-up. Good customer service, great research tools.
- Vanguard — the pioneer of index fund investing. Their funds are excellent, though their app and website feel dated.
What to actually buy inside the Roth IRA — if you want to keep it dead simple:
One-fund approach: Buy a target-date fund matched to your expected retirement year. Retiring around 2060? Buy a “Target Date 2060” fund. It automatically adjusts from stocks (aggressive, high growth) to bonds (conservative, stable) as you age. Set it, fund it monthly, forget it.
Three-fund approach (a common DIY setup):
- 60% US Total Stock Market Index (Fidelity FSKAX or Vanguard VTSAX)
- 30% International Stock Market Index (Fidelity FTIHX or Vanguard VTIAX)
- 10% US Bond Market Index (Fidelity FXNAX or Vanguard VBTLX)
Rebalance once a year. Total annual cost: about 0.03-0.05% in expense ratios. That’s $3-$5 per year on a $10,000 balance. Compare that to the 1-2% that financial advisors typically charge.
The Roth IRA income limit workaround (backdoor Roth)
If you earn over $150,000 (single) or $236,000 (married filing jointly) in 2026, you can’t contribute directly to a Roth IRA. But there’s a perfectly legal workaround called the backdoor Roth IRA:
- Contribute $7,000 to a Traditional IRA (no income limit for contributions)
- Convert that Traditional IRA to a Roth IRA (no income limit for conversions)
- Pay taxes on any gains between contribution and conversion (usually minimal if you convert quickly)
It’s two extra steps but it works. Congress has talked about closing this loophole for years but hasn’t done it yet. Take advantage while it lasts.
Common mistakes (and what they cost)
These are the errors that quietly cost twenty-somethings the most. The dollar figures below are worked examples at an 8% return, not anyone’s real account.
Skipping the match for the first few years. On an $80K salary with a 4% match, that’s about $3,200/year. Miss it for three years and roughly $9,600 in free employer money never gets invested — money that, compounded for 35 more years, could be worth around $100,000. (Worked example.)
Parking everything in a “stable value” fund. It’s tempting to pick the most conservative option when the market feels scary. But a fund earning ~2% a year while the stock market returns 10%+ over the same stretch leaves enormous growth on the table. At 25, you have around 40 years until retirement — that’s the horizon where aggressive stock exposure makes sense.
Putting off the Roth IRA because it “seems complicated.” It isn’t. Opening one takes about 15 minutes online at Fidelity, Schwab, or Vanguard. People delay for years over a form that takes a coffee break to fill out.
Cashing out a 401(k) when switching jobs. Take an $8,000 balance taken as cash instead of rolled into an IRA: after the 10% early-withdrawal penalty and income taxes, you might pocket about $5,200. Left invested until 65, that same $8,000 could have grown to roughly $90,000. (Worked example.)
The one thing worth telling every 22-year-old
You’re not going to feel the impact of starting today. There’s no immediate reward. Your 401(k) balance will look embarrassingly small for the first few years. You’ll contribute $400/month and see your balance go down when the market dips and wonder why you’re bothering.
That’s normal. That’s how it works. The magic doesn’t happen in year 1 or year 5. It happens in year 20 when compound growth takes your $100,000 in contributions and turns it into $500,000. Then year 25 when that $500,000 becomes $800,000 without you adding another dime.
Every month you wait is money you’ll never get back. Not because of the contribution — because of the growth on that contribution across decades.
Open the 401(k). Sign up for the match. Open a Roth IRA this weekend — 15 minutes at Fidelity, Schwab, or Vanguard. Put in $100. Automate it monthly. Then forget about it and let time do the heavy lifting.
That’s the whole plan. It’s boring. It works.
If you’re weighing a traditional-to-Roth move, run it through our Roth conversion calculator — it shows the federal tax on converting a traditional IRA or 401(k) using 2026 brackets, the after-tax value of converting vs not, and traditional vs Roth for new savings. Wondering how compound growth turns small monthly contributions into serious wealth? That’s exactly what our compound interest guide breaks down. And before you invest anything, make sure you’ve got your emergency fund in place — you don’t want to cash out retirement savings to cover a surprise expense.