Covering your costs in your retirement will probably be the largest financial goal in your life. Your retirement can potentially last for decades, and once you no longer collect a paycheck, your savings and investments will probably have to cover a huge chunk of your expenses.

With that in mind, it's incredible important to start saving for retirement early, making use of tools that are designed to help you get there effectively and efficiently. These three approaches are among the absolute best ways to invest for your retirement.

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No. 1: Roth 401(k)

A Roth 401(k) can be the most powerful tool you can use to invest for your retirement, if your employer offers it and if you still have over a decade or so until you retire. Roth 401(k)s allow you to invest after-tax dollars in the plan and then withdraw the money completely tax-free once you reach age 59 1/2 as long as you've had money in the account for at least five years. In addition, your contributions come directly out of your paycheck, which makes it much less tempting to spend the money.

When you're early in your career, your income (and thus tax rate) will probably be lower than later in your career. As a result, you won't benefit as much from the immediate tax deduction that a Traditional-style 401(k) offers. Early in your career, your money will also have longer to compound on your behalf, making the tax-free withdrawals in retirement that much more valuable for you. That's particularly true when compared to Traditional style 401(k) plans where your withdrawals are taxed as ordinary income.

In 2021, if you're under 50, you can generally contribute up to $19,500 to your Roth 401(k) plan. If you're 50 or more, you can make an additional $6,500 in catch-up contributions, making the typical limit $26,000. 

No. 2: Roth IRA

The Roth IRA brings with it a ton of flexibility and key features that makes it a very high-powered retirement account. In particular, the withdrawal rules can be very friendly and flexible for both early retirees and those retiring at a more standard age. That makes the Roth IRA a key tool for people with earned income looking to manage their retirement money effectively and efficiently.

What keeps it from the top spot is that contribution limits are lower than a Roth 401(k) and have tighter restrictions on who can contribute. In 2021, contribution limits are generally $6,000 for those under 50 or $7,000 for those 50 and up. In addition, if your income is too high, your contribution limits start to phase out. The limits start coming into play above $125,000 if you're single, above $198,000 if you're married filing jointly, or if you have any income at all if you're married filing separately. 

Still, as a testament to the flexibility of a Roth IRA, you can typically roll money into your Roth IRA from other qualifying retirement accounts to build up your balance that way. Building up a big Roth IRA balance is beneficial because the withdrawal strategies are so flexible.

First, you can withdraw money you directly contribute to your Roth IRA at any time for any reason and pay no taxes or penalties on that withdrawal at all. Next, you can withdraw money you rolled over into a Roth IRA after it has sat in the Roth IRA for at least five years and pay no taxes or penalties. In addition, once you've reached age 59 and a half, you can withdraw money from your Roth IRA completely tax and penalty free for the rest of your life, as long as the account has had money for at least five years. 

Perhaps the most powerful benefit of all, though, is that you never have to take a withdrawal from your own Roth IRA during your lifetime. Only inherited Roth IRAs are subject to Required Minimum Distributions (RMDs), which means money in your own Roth IRA can continue to compound completely tax free for the rest of your life. For retirees who have significant balances in Traditional retirement plans, those RMDs can add substantial costs and taxes that can be sidestepped with a Roth IRA.

No. 3: Traditional 401(k)

When you're later in your career and if you don't already have a large balance in Traditional-style retirement accounts, a Traditional 401(k) can be a very savvy investment vehicle to use. Like a Roth 401(k), your contributions come directly out of your paycheck, but they are made pre-tax. If you're in a high tax bracket, that immediate deduction can come in incredibly handy. Contribution limits are the same as for a Roth 401(k).

The key downsides of a Traditional 401(k) are that your withdrawals are taxed as ordinary income in retirement and that your balance is subject to those RMDs once you reach age 72. If your balance isn't too large, the RMDs can be manageable. Indeed, when paired with the immediate tax deduction for your contribution and the fact that most people's income's drop once they retire, a Traditional 401(k) can offer the best of both worlds.

After all, if your income is essentially $0 other than your 401(k) withdrawals, those withdrawals first cover your standard deduction and then low tax brackets before the taxes really start to bite. As a result, you can get a big tax deduction for putting money in while you're making high income and then take money out when your taxes are lower because your income is lower, too.

Just be wary of letting your Traditional 401(k) balance get too large. Once you reach age 72, you are required to take distributions from that account based on your age and account balance. Those distributions are treated as ordinary income. As a result, they can raise your Medicare Part B costs, the portion of your Social Security income that is subject to taxes, and your ordinary income tax bill as well.

If your projections of your balance starts to get high enough that you're worried those costs will start to bite hard, consider rolling a portion of your balance to your Roth IRA. You'll pay taxes on the conversion, but once the money is in your Roth IRA, you could potentially never pay taxes on it again. Do note that once your Traditional 401(k) is subject to mandatory withdrawals, you must take those withdrawals out of your retirement accounts, but you can roll any additional amount into your Roth IRA.

Get started now

Regardless of how you choose to invest and plan for your retirement, the most important thing you can do is get started now. The sooner you begin your journey, the longer you can let compounding work on your behalf. That can both reduce the amount of money you need to sock away each month and ultimately add up to a much more financially comfortable future.

You will never again have more time before you retire than you do right now. So make today the day you start making use of at least one of these three tools to build a better retirement for yourself.