TL;DR
- 🟩 Roth = pay tax now, grow tax-free, withdraw tax-free later. Great when your tax rate today is low.
- 🟨 Traditional / 401(k) = skip tax now, pay tax later when withdrawing. Great if your tax rate later will be lower than today.
- 🎁 Always take the employer match first. It’s free money.
- 📈 Invest simply. One broad fund (e.g., S&P 500) or a “balanced” mix works.
- 🔁 Auto-increase contributions each year (e.g., +1–5%). Future-you won’t notice; your balance will.
Watch: IRA Explained in 5 Minutes
“IRA Explained In Less Than 5 Minutes | Simply Explained” (YouTube)
Prefer a direct link? Open on YouTube.
Why choose Roth? Why choose Traditional?
🟩 Roth — “Pay tax now, thank me later”
- 🧒 You’re young + early-career → likely in a lower tax bracket today.
- 🚀 Decades of growth → all future gains can be tax-free at retirement.
- 🧽 Clean and simple withdrawals (no tax surprise later).
Vibe: “I’ll lock in the low tax today so future-me keeps every dollar.”
🟨 Traditional / 401(k) — “Skip tax now, pay later”
- 💼 High taxable income today or expect a lower tax rate in retirement.
- 🏦 Big employer match lives here—grab it first. (Most matches are inside the 401(k).)
- 🧯 Immediate tax relief helps cash flow (rent, loans, life).
Vibe: “I’ll lower my tax bill now; future-me can handle taxes when withdrawing.”
The Order of Your Dollars (easy mode)
- 🎁 Employer 401(k) match — contribute enough to get 100% of the match.
- 🟩 Roth IRA — if eligible, fill it next (tax-free growth).
- 🟨 Back to 401(k) — push contributions higher toward the plan max.
- 📦 Taxable account — for overflow (keep it low-cost and simple).
Bonus: turn on auto-escalation so your contribution rises 1–5% each year. Set-and-forget. 🔁
Teeny examples (no formulas, just sense-making)
🎓 Early-career (likely Roth)
You’re 22, paying relatively low taxes. Putting $100 into Roth means you’ve already handled the tax. If it grows into $1,000 later, you keep the full $1,000. ✅
💼 High-income year (maybe Traditional)
You get a big raise or bonus. Traditional lets you reduce this year’s taxes. If you expect a lower bracket later, that trade can win. 🧮
🧪 “Mix it” strategy
Many people do both: take the 401(k) match (Traditional), then add a Roth IRA. You’re hedging future tax uncertainty. 🤝
What do I actually buy inside the account?
- 🇺🇸 One-fund simple: S&P 500 index fund.
- ⚖️ Balanced: 60% stocks / 40% bonds (classic calm-ish compounding).
- 🚀 Growthy: QQQ-style tech heavy (bumpier ride, higher potential).
- 🌍 US + International: add overseas for diversification.
- 🛟 More bonds: smoother but usually a smaller finish.
Want numbers? Open your Choices Tree page to see typical / tough / great-run finishes at age 62.
Quick-Start Checklist ✅
- ✔️ Turn on auto-contribute from each paycheck.
- ✔️ Contribute enough to get the full 401(k) match.
- ✔️ Add a Roth IRA (if eligible) and automate monthly.
- ✔️ Auto-increase 1–5% every year.
- ✔️ Pick one simple fund (S&P 500 or balanced). Don’t tinker every week.
- ✔️ Ignore scary headlines. Focus on time in the market, not timing.
FAQ + Myth-Busters
“Is Roth always better for young people?”
Often, but not always. If you’re already in a high tax bracket today (rare at 22), Traditional might beat Roth. You can also split contributions.
“What if tax laws change?”
No one knows. That’s why a mix (some Roth, some Traditional) is reasonable if you want to hedge the future.
“What if I need the money?”
Emergency fund first (cash), then retirement. Don’t yank retirement money unless it’s a true emergency—penalties and taxes can hurt.
“How do I raise my contribution without pain?”
Turn on auto-escalation (1–5% every year). You’ll adapt to the paycheck amount; the balance silently snowballs.
Final nudge 💬
Start now, even small. A boring plan you stick with beats a perfect plan you never start. Future-you will send thank-you memes. 🥹📈
See the “Choices Tree” outcomes →Education only — not investment advice.