Working Americans saving and investing for retirement are often seeking the best tools to help them get the most from their money.
In my years of reporting on Americans’ personal finance concerns, I’ve consistently found 401(k) plans and Individual Retirement Accounts (IRAs) to be among the most widely used vehicles to drive people’s post-career dreams.
Dave Ramsey, the bestselling financial author, sounds an alarm about a key first step toward achieving those aspirations.
That initial starting point involves taking the time to learn as much as possible about retirement savings options.
“A traditional 401(k) and a Roth IRA are two of the most powerful tools you can use to save for retirement,” Ramsey wrote on his company’s website Ramsey Solutions. “For most people, the best strategy is to use both a Roth IRA and traditional 401(k) to save for retirement.”
“Start by contributing enough to your 401(k) to get the full employer match, then max out a Roth IRA for tax-free growth,” he added. “After that, you can return to your 401(k) to increase contributions.”
Dave Ramsey explains 401(k)s, Roth IRAs
A traditional 401(k) is an employer‑sponsored retirement plan where one chooses a portion of each paycheck to set aside, and that amount is automatically invested.
Contributions aren’t taxed upfront — instead, the taxes are postponed until retirement and a person begins withdrawing the money, at which point the withdrawals are taxed based on one’s income tax rate at that time.
A Roth IRA is a personal retirement account that lets people contribute a set amount each year. Its biggest advantage is that one’s investments grow tax‑free, and when a person retires, they can take the money out without paying taxes on those withdrawals.
“When you hear the word Roth, your ears should automatically perk up — because a Roth IRA allows your savings to grow tax-free,” Ramsey wrote. “That’s right: tax-free. That means once you turn 59-and-a-half, you can withdraw money from your account without owing a penny in taxes.”
“Once you’re ready to retire, a large chunk of your Roth IRA balance will likely come from investment growth,” he continued. “So, no taxes on that growth means hundreds of thousands of dollars stay in your pocket and out of Uncle Sam’s.”
A Roth IRA gives a person far more investment freedom than a 401(k) because they can choose from thousands of mutual funds rather than being limited to a preset list, and it isn’t connected to one’s employer, so it can be opened and maintained regardless of one’s job situation.
It also doesn’t require minimum yearly withdrawals, allowing savings to grow untouched for as long as a person wants.
Ramsey also mentions another advantage of a Roth IRA.
“If you’re married but only one of you earns money, you can still open a Roth IRA for the nonworking spouse,” Ramsey wrote. “The working spouse can invest in accounts for both of you — up to the full contribution limit! On the other hand, only the employee can contribute to their 401(k).”
Dave Ramsey highlights Roth IRA limitations
Ramsey explains that a Roth IRA has some limitations it is important to be aware of.
- Lower contribution limits — Roth IRA deposits are capped at $7,500 for 2026 (or $8,600 if you’re 50+), which is far below the 401(k) limit of $24,500, so it’s often most effective to use both accounts together.
- Income restrictions — If your modified adjusted gross income exceeds $168,000 as a single filer or $252,000 as a married couple filing jointly in 2026, you can’t contribute to a Roth IRA, though a traditional IRA is still available.
- Five‑year withdrawal rule — You must wait at least five years after your first contribution before taking out investment earnings without taxes or penalties, and withdrawing before age 59½ generally triggers penalties as well.
(Source: Ramsey Solutions)
Ramsey outlines 401(k) advantages
In 2026, a person can put as much as $24,500 into a 401(k), and that total includes any matching dollars an employer adds, according to the Internal Revenue Service (IRS).
Those 50 and older are allowed an additional $8,000 in catch‑up contributions, bringing their maximum to $32,500. And for people of ages 60 to 63, the catch‑up limit rises to $11,250, allowing a combined total of $35,750.
“Probably the best thing about a 401(k) plan is that your employer can match your investment up to a certain amount,” Ramsey wrote. “That’s a 100% return on your investment right off the bat. Matching isn’t required by the government, so not all employers offer it. If yours does, make the most of it. Don’t overlook free money.”
A person contributes to a traditional 401(k) with pretax dollars, which lowers their taxable income for the year and can reduce the amount they owe when it’s time to file taxes, Ramsey emphasizes.
Ramsey highlights 401(k) disadvantages
Ramsey also notes a few disadvantages of a 401(k) plan.
- Employers often rely on an outside administrator to manage their retirement plan, which means employees are limited to the mutual fund options that administrator selects.
- And while traditional 401(k) contributions reduce their taxable income now, they’ll owe taxes on withdrawals later in retirement, potentially resulting in a sizable tax bill depending on their future tax bracket.
- They’re also required to begin taking minimum distributions at age 73, and pulling money out before 59½ leads to penalties.
- In addition, some employers impose waiting periods and vesting requirements, meaning employees may need to work there for a set amount of time before they can participate fully or keep the entire employer match if they leave early.
(Source: Ramsey Solutions)
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Dave Ramsey encourages people to use both 401(k)s and Roth IRAs
Ramsey stresses the importance of prioritizing being debt-free (with the exception of a mortgage because owning a home provides one with equity) and having an emergency fund in place before investing in 401(k)s and IRAs.
But when a person is ready, Ramsey suggests investing in both.
“If you’re eligible for a 401(k) and a Roth IRA, the best-case scenario is to invest in both (and if you can max them both out — go for it),” Ramsey wrote. “That way, you’re taking advantage of your employer match and getting the tax benefits of a Roth IRA.”
“Once you’ve invested up to the match in your 401(k) plan, use a Roth IRA instead of a traditional IRA to get those tax benefits,” he continued.
“You won’t have to pay taxes when you withdraw money from a Roth IRA, and that can pay off big-time in the long run.”
