The retirement savings landscape has changed, and for many Americans, the greatest barrier isn’t a lack of desire to save but uncertainty about where to begin. Faced with unfamiliar terms like 401(k), IRA, Roth, and SEP, many individuals delay action. But delaying can be costly: retirement accounts can offer decades of growth that become increasingly powerful the earlier you start.
Why Waiting Is So Expensive
Time is one of the most valuable forces in retirement saving. Even modest contributions started early can grow substantially over decades, thanks to compounding growth. Starting contributions in your 20’s versus your 30’s can lead to hundreds of thousands more at retirement, assuming similar rates of return and savings behavior.
For younger workers, the priority is participation and habit formation, establishing the savings habit before lifestyle inflation takes hold. Middle and later-career workers benefit from increased contribution limits and catchup features during peak earning years. Those nearer to retirement must thoughtfully structure accounts to balance income, taxes, and withdrawal sequencing in retirement.
Tax Deferred vs. Tax Free: Two Paths, One Goal
At the heart of retirement account decisions is a simple choice: when do you pay taxes?
- Tax deferred account: traditional 401(k)’s and traditional IRA’s let you contribute pretax dollars and defer income tax until you withdraw funds in retirement.
- Tax free accounts: Roth IRA’s and Roth 401(k)’s, are funded with after-tax dollars, but qualified withdrawals in retirement are tax-free.
Both offer attractive tax advantages. Vanguard highlights that deciding between these options isn’t about “better” or “worse,” but about when tax treatment fits your individual situation: current tax rate vs. expected future rate. Younger savers, especially those in lower tax brackets today, may benefit greatly from Roth accounts that allow decades of tax-free growth. Those in higher current brackets may prefer tax‑deferred accounts to reduce taxable income now. Since Roth IRAs offer flexibility, after 5 years, you can withdraw your own contributions tax- and penalty-free it can be considered an emergency fund or can support major expenses like college yet many owners treat them as their last pool of funds to tap, since Roths have no required minimum distributions and can pass tax-free withdrawals to beneficiaries.
Employer Plans: A Simple, Powerful Start
For employees with access to a workplace retirement plan, a 401(k) or similar option is often the easiest and most effective place to begin saving. These plans streamline saving with automatic payroll deductions and often include employer matching contributions which Vanguard terms “instant return on investment” because they are guaranteed contributions that wouldn’t exist without participation.
According to data from Fidelity, retirement plan participants hold significantly larger average balances than workers without access to a workplace plan, underlining how access and participation matter. Participating in an employer-sponsored plan tends to boost overall savings by making contributions automatic and seamlessly integrating saving into your regular financial routine.
Going Solo: Options for the Self Employed
Not everyone has access to an employer plan. Entrepreneurs, freelancers, and gig workers can still build substantial retirement savings through individual accounts:
- Traditional and Roth IRA’s provide flexible entry points with tax benefits and wide investment choices.
- Solo 401(k)’s and SEP IRA’s allow higher contributions for owners of small businesses or self-employment income, increasing potential savings significantly compared with IRAs alone.
Diversifying across account types can create flexibility later in life when tax planning and withdrawal sequencing become key.
What’s New for 2026
The IRS periodically adjusts contribution limits to account for inflation and policy changes. For 2026, key limits include:
- 401(k), 403(b), and 457(b) contribution limit: $24,500
- Catchup contributions (age 50+): up to $8,000
- Higher catchup for ages 60–63: up to $11,250
- IRA (traditional and Roth) limit: $7,500, with a $1,100 catchup allowance. These updated thresholds provide meaningful opportunities to accelerate savings, particularly for midcareer and near career and workers nearing retirement.
Different Ages, Different Priorities
Retirement accounts serve slightly different roles depending on where you are in life:
- 20s–30s: Your priority is participation and automation. Getting started now builds habits that compound savings over decades.
- 40s–50s: This is your “acceleration zone.” Maximize contributions and consider tax diversification strategies.
- 60s and beyond: Focus on flexibility, understanding how different account types affect your income, taxes, and distribution options.
From Confusion to Confidence
You don’t need to become a financial expert to secure your financial future—you need clarity and a plan you can act on. The most important steps are simple: enroll in a retirement account, contribute consistently, and take full advantage of what’s available to you.
If you’re still unsure how to begin or how these options fit your broader retirement strategy, our next session will break down these tools in accessible terms and help you take actionable steps.
Take the Next Step
Article 1 in this series explained why individual action matters now more than ever. Now that you understand the key types of retirement accounts and how they serve different stages of life, join Webinar 2: Introduction to Retirement Accounts. We’ll demystify these tools and help you build confidence to act: no jargon, nothing overwhelming, just clarity and direction.
Join Us live on Feb 12th, 11am as we discuss these important options to securing your financial future. Follow this LINK to register.
https://streamyard.com/watch/Wakp6XsxEWsn
Sources
Vanguard. Roth IRA vs. Traditional IRA. Vanguard Investor Resources, 2024, https://investor.vanguard.com/investor-resources-education/iras/roth-vs-traditional-ira.
Vanguard. Retirement Account Types & Tax Treatment. Vanguard Investor Resources, 2024, https://investor.vanguard.com/investor-resources-education/retirement/savings-retirement-accounts.
Fidelity. Guide to Retirement Account Basics. Fidelity Learning Center, 2024, https://www.fidelity.com/learning-center/smart-money/retirement-accounts.
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500. IRS, 2025, https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500.
The opinions expressed in this Commentary are those of Baldwin Investment Management, LLC. These views are subject to change at any time based on market and other conditions, and no forecasts can be guaranteed. The reported numbers enclosed are derived from sources believed to be reliable. However, we cannot guarantee their accuracy. Past performance does not guarantee future results. We recommend that you compare our statement with the statement that you receive from your custodian. A list of our Proxy voting procedures is available upon request. A current copy of our ADV Part 2A & Privacy Policy is available upon request or at www.baldwinmgt.com/disclosure.
Joe Much, CFA , Associate Managing Director
Joe hails from Wilmington, Delaware, where he spent most of his life. He earned his undergraduate degree in finance from Temple University before furthering his education with a graduate degree in investment management, also from Temple University. Holding the CFA charter, which he achieved in 2022, Joe aligns with the caliber of professionals at Baldwin.
Before joining Baldwin, Joe served as the Director of Investments for a financial advisory firm at Northwestern Mutual in Albuquerque, New Mexico. His passion for all facets of the market drives him to dedicate substantial time researching, analyzing, and forecasting investment opportunities. Moreover, Joe finds fulfillment in working with clients, guiding them towards financial freedom through meticulous long-term investment strategies.
Outside of his professional pursuits, Joe indulges in golfing, outdoor activities, and competes in strongman weightlifting competitions. His favorite financial quote is, “The market can remain irrational longer than you can remain solvent.”