Starting early is the golden rule of investing. For young adults in their 20s and early 30s, opening the right type of investment account can set the stage for long-term financial freedom. But with so many options out there—Roth IRAs, 401(k)s, brokerage accounts—it’s easy to feel overwhelmed.
This guide breaks down the best investment accounts for young adults and helps you make informed decisions to start building wealth today.
Why Start Investing Young?
Compound interest is the most powerful tool in your financial arsenal. By starting in your 20s, you allow your money more time to grow—even small contributions can snowball into six or seven figures over decades. Investing also helps you beat inflation, plan for retirement, and build assets for major life goals like buying a home or starting a business.
1. Employer-Sponsored Retirement Plans (401(k), 403(b), 457)
Best For: Employees with access to retirement plans
Tax Benefit: Tax-deferred growth and possible upfront tax deductions
Most employers offer 401(k) plans (or 403(b)/457 for public service jobs), where your contributions are taken directly from your paycheck—often before taxes are applied. This lowers your taxable income while helping your investments grow tax-deferred.
Pro Tip: Always contribute at least enough to get the full employer match—it’s free money.
2. Traditional IRA (Individual Retirement Account)
Best For: Individuals seeking tax deductions
Tax Benefit: Contributions may be tax-deductible; grows tax-deferred
With a traditional IRA, you can contribute up to $7,000 annually (as of 2025). If you’re eligible, contributions can reduce your taxable income. Your investments grow tax-deferred until you withdraw them in retirement, when they’ll be taxed as regular income.
Watch Out: Withdrawals before age 59½ usually incur a 10% penalty, plus income taxes.
3. Roth IRA
Best For: Young investors expecting income growth
Tax Benefit: Withdrawals in retirement are completely tax-free
The Roth IRA is tailor-made for young earners. You invest post-tax income now, and in retirement, you can take out both your contributions and earnings tax-free—as long as you’re 59½ and the account has been open for at least five years.
Why It’s Great for Young Adults: Your lower current income means you’re in a lower tax bracket, making the Roth more valuable long-term.
4. Taxable Brokerage Account
Best For: Flexibility and access to funds anytime
Tax Treatment: Dividends, capital gains, and interest are taxed annually
A taxable brokerage account gives you the freedom to invest in stocks, exchange-traded funds (ETFs), mutual funds, and more—without the restrictions of retirement accounts. You can deposit and withdraw anytime, making it ideal for mid-term goals or extra investing beyond retirement accounts.
Bonus Tip: Long-term capital gains (for investments held over a year) are taxed at a lower rate than short-term gains.
5. High-Yield Savings Accounts and certificates of deposit (CDs)
Best For: Saving for short-term goals or emergency funds
Tax Treatment: Interest is taxed annually
While not traditional “investment” vehicles, high-yield savings accounts and CDs are safe places to park cash you’ll need in the next 1–3 years. They offer better interest rates than regular savings accounts with minimal risk.
6. Robo-Advisors and Micro-Investing Platforms
Best For: Beginners who want automation and simplicity
Tax Treatment: Depends on account type (Roth IRA, Traditional IRA, or Taxable)
Robo-advisors like Betterment, Wealthfront, and SoFi use algorithms to build and manage a diversified portfolio for you based on your goals and risk tolerance. Apps like Acorns even round up your spare change and invest it for you.
Pros:
Low fees
Hands-off investing
Great mobile experience
Where to Open Investment Accounts
Here are some of the most popular and trusted places for young investors to open accounts:
- Fidelity: Best for Low fees & educational tools
- Vanguard: Best for Long-term investors
- Charles Schwab: Best for All-in-one investment tools
- Acorns: Best for Micro-investing beginners
- Betterment: Best for Automated portfolio building
- SoFi Invest: Best for Student loans + investing
When choosing a platform, look for low fees, ease of use, investment options, and customer support.
Final Thoughts
The best investment account for you depends on your goals, income, and timeline. Don’t let choice overload stop you—start with what you can, and increase your contributions over time. The earlier you begin, the more your money works for you.
Remember, investing is a journey. The first step is simply getting started.
Frequently Asked Questions (FAQ)
What is the best investment account to start with as a young adult?
For most young adults, a Roth IRA is one of the best investment accounts to start with. It allows you to contribute post-tax income now and enjoy tax-free withdrawals in retirement, making it ideal for individuals in a lower tax bracket today who expect their income to grow over time. Since contributions can be withdrawn penalty-free at any time, it also offers some flexibility if you need access to your funds before retirement.
Is it better to open a Roth IRA or a traditional IRA in your 20s?
Generally, a Roth IRA is better suited for young investors in their 20s. That’s because your income is likely to be lower now than it will be later in life, which means you’re paying taxes at a lower rate today. With a Roth IRA, you pay taxes upfront but withdraw funds tax-free in retirement—making it a smart long-term strategy for young professionals starting their financial journey.
Can I invest in both a 401(k) and an IRA at the same time?
Yes, you can contribute to both a 401(k) and an IRA in the same year, as long as you meet the income eligibility limits for the IRA. Using both accounts can maximize your retirement savings, and if your employer offers a 401(k) match, it’s wise to contribute at least enough to receive the full match before funding an IRA. This combined approach can accelerate your retirement growth with tax advantages on both fronts.
Are robo-advisors good for beginner investors?
Robo-advisors are an excellent choice for beginners who want a hands-off investment experience. They use automated algorithms to build and manage a diversified portfolio tailored to your risk tolerance and financial goals. In 2025, platforms like Betterment, Wealthfront, and SoFi continue to offer low-cost, user-friendly tools ideal for young adults who may not have the time or expertise to manage investments manually.
What’s the difference between a brokerage account and a retirement account?
A brokerage account is a taxable investment account that offers flexibility—you can buy and sell investments and withdraw funds anytime, but you’ll pay taxes on dividends, interest, and capital gains. Retirement accounts like IRAs and 401(k)s, on the other hand, come with tax advantages but restrict early withdrawals. Retirement accounts are better for long-term savings, while brokerage accounts are great for mid-term goals and additional investing.
How much should a young adult invest each month?
There’s no one-size-fits-all amount, but a good starting point is to aim for 10% to 15% of your monthly income. Even if you can only invest $50 to $100 per month, starting early gives your money more time to grow thanks to compound interest. As your income rises, increasing your contributions can significantly boost your long-term wealth.
Are high-yield savings accounts considered investments?
High-yield savings accounts are not traditional investments, but they are useful for short-term financial goals and emergency funds. They offer higher interest rates than regular savings accounts with virtually no risk. While they don’t provide the growth potential of stocks or mutual funds, they’re essential for building a financial safety net before diving into long-term investments.
What’s the minimum amount needed to start investing in 2025?
Many investment platforms today, including robo-advisors and micro-investing apps like Acorns, allow you to start with as little as $5. Traditional brokers such as Fidelity and Schwab also offer no-minimum investment options for ETFs and fractional shares. The key is to start small and stay consistent—time in the market matters more than timing the market.
Is investing safe for beginners in their 20s?
While all investing involves some risk, young adults in their 20s are in a prime position to take advantage of the market’s long-term growth. With decades before retirement, you have time to recover from market downturns and benefit from compounding. Diversifying your portfolio, understanding your risk tolerance, and starting with basic index funds or ETFs can make investing both safe and effective for beginners.
Which investment platform is best for young investors in 2025?
In 2025, platforms like Fidelity and Charles Schwab are top choices for their low fees and robust educational resources. For those looking for automation and simplicity, robo-advisors like Betterment and SoFi Invest are highly rated. Micro-investing platforms like Acorns are ideal for getting started with small amounts. The best platform for you depends on your financial goals, investment style, and comfort level with risk.
Featured image credit: Ivan Samkov (Pexels)
