Great job learning about 401(k)s! Now let's explore another powerful retirement savings tool: Individual Retirement Accounts, or IRAs.
An IRA is a retirement account you open yourself, not through your employer. You control it completely.
Engagement Message
What's one advantage you see in having control over your own retirement account?
There are two main types of IRAs: Traditional and Roth. Both help you save for retirement, but they handle taxes differently.
Think of it like paying taxes now versus paying taxes later. Each has its place in smart financial planning.
Engagement Message
Which sounds more appealing: saving on taxes today or saving on taxes in retirement?
Traditional IRAs work like 401(k)s: you contribute money before taxes, reducing your taxable income today. Your money grows tax-free until you withdraw it in retirement.
When you withdraw in retirement, you'll pay taxes on everything you take out.
Engagement Message
Which other retirement account we discussed shares this tax treatment?
Roth IRAs work opposite: you contribute money after paying taxes on it today. Your money still grows tax-free, but here's the magic part.
When you withdraw in retirement, you pay zero taxes on everything - your contributions and all the growth!
Engagement Message
How would paying no taxes in retirement change your retirement plans?
Here's a simple way to think about the choice: if you expect to be in a higher tax bracket in retirement, Roth might be better.
If you expect lower taxes in retirement, Traditional might make more sense. Many young people choose Roth because they're early in their careers.
Engagement Message
Do you expect your tax rate to be higher or lower in retirement—and why?
