✨ Featured Lessons · Lesson 44 of 54 · 75 sec

Roth vs Traditional: Pay Tax Now or Later

🔀 Same $100,000 saved. Same return. Two people retire — one pays $0 tax, the other pays $20,000. The difference? Which account they used.

💡 Key idea

Roth = seeds taxed, harvest free. Traditional = seeds free, harvest taxed.

🧠 Why it matters

TRADITIONAL = tax break TODAY, tax bill in retirement. ROTH = pay tax TODAY, $0 tax in retirement. Rule of thumb: if you expect higher tax rate in retirement (most young people), choose ROTH. If you're in a peak earning year, TRADITIONAL.

🌍 In the real world

👩‍🎓 22-year-old earning $40k → low bracket now, probably higher later → Roth. 50-year-old earning $200k → high bracket now, likely lower in retirement → Traditional. Many people use BOTH for 'tax diversification.'

📌 Takeaways

Roth = tax-free withdrawals
Traditional = upfront tax break
Young/low-income → lean Roth

✅ Test yourself

You're 25, earning $45k, expect to earn more later. Best pick for new $200/mo contributions?

Traditional 401k
Roth IRA / Roth 401k
Savings account
Crypto

Answer: B · Roth IRA / Roth 401k

Roth locks in today's low tax rate. Decades of growth come out tax-free.

Roth IRA 2026 contribution limit (under 50)?

$2,000
$7,500
$23,000
Unlimited

Answer: B · $7,500

$7,500/yr under 50, $8,600 if 50+ (2026). Limits adjust yearly.

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