IRAs vs CDs: Choose both! Check out my Ultimate Guide to Personal Finance for tips you can implement TODAY. Safeguard your financial future (for free). The Roth IRA is one of the best investments you can make as a young person. It works a lot like a 401k, which leverages pre-tax dollars to invest and you pay income tax when you withdraw the money at retirement. Unlike a 401k though, a Roth IRA uses your after-tax money to invest, giving you an even better deal. It's simply the best deal I've found for long-term investing. When you make money every year, you have to pay taxes on it. With a Roth, you take this after-tax money, invest it, and pay no taxes on any gains when you withdraw it. That means you can put already taxed income into bonds, index funds, or whatever else, allowing it to accrue compounded interest over time. If Roth IRAs had been around in 1970 and you'd invested $10,000 in Southwest Airlines, you'd only have had to pay taxes on the principal amount.