Many Americans who are saving and investing for retirement are exploring the best methods for them to achieve maximum success.
Dave Ramsey, the personal finance bestselling author and radio host, confronted this challenge and shared a 4-word reaction on how 401(k)s and Roth IRAs can help amass money for retirement.
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Ramsey described the two tools as some of the most powerful investment strategies a person can use to succeed in their quest to retire comfortably. He noted that it’s important to understand the money basics behind each approach.
A 401(k) is an employer-sponsored retirement savings plan that allows American workers to choose the percentage of their income they want to contribute. The money invested is tax-deferred, which means no income taxes are paid upfront. But during retirement, withdrawals are taxed.
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Roth IRAs are accounts that exist for people to save a specific dollar amount every year. These accounts are an intriguing alternative because they include both tax-free growth as well as tax-free withdrawals in retirement. But taxes, of course, are paid when making contributions.
Ramsey took a look at both of these retirement savings tools and had some words of advice.
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Dave Ramsey shares 4 words on 401(k)s and Roth IRAs
Ramsey explained that the important truth to understand about these strategies involves figuring out the answer to the question of which one is best for the worker.
“It could be both,” was his four-word response.
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Ramsey expanded a bit more on his descriptions of the two accounts.
The fact that contributions to a Roth IRA are made with after-tax dollars is key because investments are done with money that grows tax-free.
“And here’s the deal,” Ramsey wrote. “Once you’re ready to retire, most of the money in your Roth IRA will be growth. So, no taxes on that growth means hundreds of thousands of dollars stay in your pocket and out of Uncle Sam’s.”
And Americans can start a Roth IRA at any time. Unlike a 401(k), if a person’s work situation goes through changes, the Roth IRA is unaffected.
One disadvantage of Roth IRAs is that there are contribution limits to consider. In 2025, a person can only invest up to $7,000 per year, and an additional $1,000 on top of that for people who are at least 50 years of age.
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Dave Ramsey explains major facts on 401(k) plans
Ramsey clarifies a basic point about how 401(k) plans work: A worker selects a percentage or dollar amount they wish to contribute each pay period. The money is automatically deducted from paychecks and put toward retirement savings.
The employer match involved with 401(k)s is a big advantage to put toward good use. Up to a certain percentage, a worker is immediately doubling their investment on a continuing basis.
For 2025, the contribution limit for 401(k) plans has increased to $23,500, up from $23,000 in 2024. If a person is aged 50 or older, they can make an additional catch-up contribution of $7,500, bringing the limit total to $31,000.
Ramsey explains his advice on investing in 401(k)s and Roth IRAs for retirement savings.
“If you’re eligible for a 401(k) and a Roth IRA, the best-case scenario is that you invest in both accounts (and if you can max them both out — knock yourself out),” he wrote. “That way, you’re taking advantage of your employer match and getting the tax benefits of a Roth IRA.”
“The best way to remember where to start is with this rule: Match beats Roth beats traditional,” he added. “An employer match is free money, and you simply don’t leave free money on the table — so that’s where you start.”
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