Your first adult job sprouts a new round of firsts: first couch that isn’t a futon, first bed that isn’t a futon, first kitchen table that isn’t a futon. And then, of course, there’s your first adult paycheck.
Ideally, that paycheck will sprout your first investment account. Because while investing may not be top of mind right out of college, it should be: Even small amounts add up big over time.
The trouble — aside from actually finding money in your budget to save and invest — is figuring out where to put it. Here are five options, in very particular order.
1. A 401(k) with matching dollars
Contributions to a traditional 401(k) come out of your paycheck pretax, which means you don’t pay taxes on that money … now. You’ll be taxed instead when you take distributions from the account in retirement.
Tax perks like this are common in retirement plans, but there are two unique factors that land the 401(k) in the top spot: a high annual contribution limit of $18,500, and employer matching dollars.
“Many — though not all — companies that offer a 401(k) plan also offer to match participant contributions. ”
You’re unlikely to hit that limit when you’re just starting out, so let’s focus on the matching dollars here, which are just what they sound like: Many — though not all — companies that offer a 401(k) plan also offer to match participant contributions. That means when you contribute to your 401(k), your employer may contribute as well, up to a cap.
The details of matching programs vary — your company might throw in 50 cents for every dollar you do, or a full dollar on every dollar, or some other arrangement — but the facts don’t: This is free money. Contribute at least enough to your 401(k) to earn your full match.
2. An emergency fund
This is cheating: An emergency fund isn’t technically an investment. But let’s call it an investment in yourself — it’s pretty key to financial stability, which makes it worth a mention here.
You might or might not have heard this rule: Keep three to six months’ worth of expenses stashed in a savings account. That’s great, if you can swing it. But many new grads can’t, and if they can, it will be at the expense of other financial goals. So, new rule: $500 or $1,000 will float you through most emergencies. You can add more once you’re steadily investing elsewhere.
3. A Roth IRA
Roughly a third of workers — and 41% of millennials — aren’t offered a retirement plan like a 401(k).
If you’re in that group, your next best option is probably a Roth IRA.
You can contribute up to $5,500 per year, and contributions are made after-tax, so distributions in retirement are tax-free. That kind of arrangement is ideal for someone just out of college, because you’re locking in your current tax rate. Not only is that rate likely to be low — thank you, entry-level salary — but income taxes in general are low right now.
Tip: There is a Roth version of the 401(k) that is less mainstream than the standard 401(k), but gaining popularity — it’s also worth a look if your employer offers it.
» Want to open a Roth IRA? Here’s the step-by-step of how to do it
4. A traditional IRA
One downside of the Roth IRA: To make the full annual contribution, your modified adjusted gross income as a single tax filer must be less than $120,000.
Needless to say, the salary of most new workers falls well below that boundary. If yours doesn’t? Drinks on you! And also, you should consider a traditional IRA instead.
The traditional IRA follows the standard 401(k) format — tax deduction now, taxes on distributions later — and shares a contribution limit with the Roth IRA. There is one important caveat: If you have a 401(k), you may not be able to deduct your traditional IRA contributions. You can read more about traditional IRAs and the deduction limits here.
5. A taxable brokerage account
This is an investment account without the tax perks — or the distribution rules — of a retirement account. Essentially, it’s a savings account you can use to trade stocks or buy mutual funds. It’s where you can continue investing once you’ve maxed out retirement accounts, or if you’d like to — gasp! — invest for nonretirement goals like a house, a wedding or avocado toast.
You can open this account at an online brokerage, if you want to get your hands dirty picking and choosing investments, or at a robo-advisor, which is what it sounds like: a computer-based investment advisor. (Here’s more about robo-advisors and what they do.) It’s your father’s gray-haired financial advisor, reimagined for millennials and anyone else who wants investment advice on the cheap.
This article was written by NerdWallet and was originally published by Forbes.