Roth versus Traditional

A Traditional account is funded with pre-tax money. Contributing $100 lowers the income you're taxed on this year, so you get a tax break up front. The money grows untaxed, and then you pay ordinary income tax on whatever you withdraw in retirement. Tax deferred, not tax avoided.

A Roth account is the mirror image. You contribute money you've already paid tax on, so there's no break today — but qualified withdrawals in retirement come out completely tax-free, including every dollar of growth. Decades of compounding, never taxed again.

Choosing between them is a bet on your own tax rate: pay tax now at today's rate, or later at your retirement rate. If your rate is low now — a student, a part-time job, a first salary — Roth usually wins, because you're paying the tax while it's cheap. In peak earning years, the Traditional deduction is worth more.

Nobody knows what future tax rates or their own income will look like, so many people deliberately end up with some of each. Having both gives you flexibility in retirement to draw from whichever is cheaper in a given year.