I’m 20, and I’m Actually Saving Money. Where Should I Put It?

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Welcome to Ask Clark, a column designed to answer your financial questions, by money expert Clark Howard.

I’m 20 Years Old, Putting Myself Through School and Working. I’m Saving $2,500 a Month. What Should I Do With It?

Ryan from Washington asks: “I’ve been listening to you since I was about 10 because you were always on the radio on my way home to school.

“It’s paid off. Now I’m 20, and I’m putting myself through school and working full time. I actually have some money saved and am unsure what to do with it.

“I just took control of my previous employer’s 401(k) by rolling it into a Fidelity IRA [Individual Retirement Account]. I can save about $2,500 a month. What should I be doing?”

Clark’s Take on What a Young Saver Should Do With $2,500 in Monthly Savings

Clark says: There are two financial scenarios that could be beneficial based on Ryan’s ability to save $2,500 a month and whether or not he has a 401(k).

If Your Employer Offers a 401(k)

“If the job you’re working at full time has a 401(k), then you want to contribute the max that you can every month,” Clark says.

In addition to taking advantage of a work-related 401(k), Clark recommends converting the money that Ryan has in his traditional IRA with Fidelity into a Roth IRA, which takes contributions on an after-tax basis.

“There’s a great advantage to you having that money at age 20 grow all through the decades where you’ve already paid the tax bill on it. So everything in that Fidelity IRA converted into a Roth would grow tax-free and be spent tax-free eventually,” Clark says.

Clark points out that, even making the maximum contribution in a Roth IRA “would take up just $6,000 of the $30,000 that you’re saving,” Clark says.

Read more about the differences between a Roth and traditional IRA.

If Your Employer Doesn’t Offer a 401(k)

Clark says: “If you don’t have access to a 401(k), why don’t you open a Fidelity investment account in addition to the IRA and put half the money in the Fidelity Zero Total Market Index Fund and the other half in the Zero International Index Fund, where you’re paying no commissions and no ongoing management fees.”


“The tax treatment is so favorable in an index fund that it would be the next best thing that I could recommend to you besides putting money in tax-free accounts like a Roth IRA,” Clark says.

Here’s how to open a Roth IRA.

To hear Clark’s full take on this question, listen to the segment:

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