Charles Langston:Want to build a million-dollar nest egg? Two investment accounts worth looking into

We all have Charles Langstonfavorites, right? Moonstruck is a favorite of mine, among movies, and Lonesome Dove is among my favorite books. I even have favorite investment accounts, ones that can make me – and you – a millionaire.

Here's a look at my favorite account for me and perhaps you as well – and another favorite that's suitable for most folks. Both offer excellent tax advantages.

My favorite millionaire-retirement building account – for most people

Let's start with my favorite millionaire-retirement building account for most folks: It's the 401(k). You'll need an employer that offers a 401(k) to use a 401(k), but gobs of companies offer them these days.

One of the drawbacks of 401(k)s, in the eyes of some investors, is that they tend to offer a limited menu of investment choices – perhaps just a dozen or so mutual funds or exchange-traded funds (ETFs). But for lots of people, that's actually a big plus. After all, millions of us are not stock-picking geniuses and can get overwhelmed and confused looking at the thousands of stocks and funds (and bonds) out there.

As long as your 401(k) offers one or more low-fee funds that meet your needs, you can be all set. A perfect kind of fund for most people – even according to Warren Buffett – is an S&P 500 index fund. It aims to deliver roughly the same returns as the S&P 500 index itself, less those low fees. The S&P 500, by the way, has averaged annual returns close to 10% over many decades. Here's how your money can grow at just 8% over time:

Another good thing about 401(k) accounts is their hefty contribution limits. In 2024, the contribution limit is $23,000 (up from $22,500 for 2023), plus an additional $7,500 "catch-up" contribution for those 50 or older. So depending on your age, your maximum will be $23,000 or $30,500. That's generous! If you're able to sock away $30,000 regularly, double the numbers in the last column above.

And then there are company matches – many employers will match your contribution to your account to some degree, typically offering several thousand dollars of free money. Oh, and your account will receive its contributions from you and your employer automatically, once you set it up, which can make saving for retirement much easier.

My favorite millionaire-retirement building account – for me

The kind of account I value most for my own investing is an IRA, and I have several. (In case you don't know, you are allowed to have multiple IRA accounts – you just can't contribute more than the annual maximum to them, in aggregate.) Over my long working life, I've invested through IRAs and 401(k)s, and both have served me well.

What's so great about an IRA? Well, a not-so-great feature is its lower contribution limit than 401(k)s. The maximum contribution amount for IRAs is $7,000 for 2024, plus a $1,000 "catch-up" contribution for those 50 or older. So if you have multiple IRAs, you can contribute a total of $7,000 or $8,000 to them, depending on your age. That might be $7,000 to one, or $4,000 to each of two IRAs, or however you want to do it.

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A key advantage of the IRA is that it gives you much more control over what you put in it. Open an IRA account at a good brokerage, and you can invest the money in that account in just about any stock or mutual fund or bond.

Thus, IRAs are particularly good for those who want to invest in individual stocks, and/or those who favor particular mutual funds or ETFs not in their 401(k)'s menu of choices.

There are even special IRAs (and other accounts) for the self-employed, with bigger contribution limits. If you're self-employed, look into the SEP IRA, the SIMPLE IRA, and/or the Solo 401(k).

Traditional or Roth?

A final decision is this: Do you want to save for retirement via a "traditional" or Roth IRA or a traditional or Roth 401(k)? With traditional accounts, you get an upfront tax break: the amount you contribute for a certain tax year can be deducted from your taxable income for that year. Earn $80,000 and contribute $7,000? Your taxable earnings shrink by $7,000, shrinking your tax bill.

With Roth accounts, you contribute post-tax dollars. So there's no upfront tax break, but if you follow the rules, when it comes time to take money out of the account, you can do so tax-free! That's kind of a huge benefit, especially if you're still relatively young and your money has many years in which to grow.

It's far from impossible to amass a million dollars or more in an IRA or in a 401(k). If you do so, that money will be available to you in the future. So look into these two kinds of accounts and see which one(s) will serve you best. One or both can play a powerful role in your retirement plan.

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