An IRA is a retirement account you open yourself — no employer needed. But there are two flavors, Traditional and Roth, and the difference comes down to one simple question: do you want to pay taxes now or later?
Quick Refresher: What's an IRA?
IRA stands for Individual Retirement Account. Unlike a 401(k), which comes through an employer, you open an IRA on your own through a brokerage. If you have earned income — even from a part-time job — you (or your parent, via a custodial account) can contribute.
Both Traditional and Roth IRAs let your investments grow without being taxed every single year, which is a huge advantage over a regular taxable account. The real difference is all about when Uncle Sam takes his cut.
Traditional IRA: Pay Taxes Later
With a Traditional IRA, you often get a tax deduction now on the money you contribute, and your investments grow tax-deferred. You only pay taxes when you withdraw the money in retirement — and at that point, it's taxed as regular income.
This can work well if you expect to be in a lower tax bracket in retirement than you are now. For most teens with low or no income, though, there's barely any tax benefit to deduct in the first place, which brings us to Roth.
Roth IRA: Pay Taxes Now, Never Again
With a Roth IRA, you contribute money you've already paid taxes on. The huge perk: it grows completely tax-free, and you pay zero taxes when you withdraw it in retirement — including on all the growth.
Here's why this is a superpower for teens: you're probably in the lowest tax bracket you'll ever be in right now. Paying a small tax bill today on a $15/hr summer job income is way cheaper than paying taxes decades from now on a much bigger balance after it's grown with compound interest.
That's why most financial educators recommend Roth IRAs for teens and young workers specifically.
A Real Numbers Example
Say you contribute $2,000 from a summer job at age 16 to a Roth IRA, and never touch it again. Using a 7% average yearly return before inflation — real returns vary and aren't guaranteed, that $2,000 could grow to roughly $30,000+ by the time you're 65 — completely tax-free when withdrawn.
With a Traditional IRA, you'd owe income tax on that entire growing balance when you eventually withdraw it. For someone starting with a small income now, Roth usually wins — but rules and contribution limits change yearly, so always check current IRS limits before contributing.
Try It: Compare the Two Paths
Grab a calculator or use our simulator to compare: what does $1,000 grow into after 45 years at a 7% average yearly return before inflation — real returns vary and aren't guaranteed — and then imagine paying taxes on that growth (Traditional) versus paying nothing (Roth).
Seeing the difference in real numbers is the best way to understand why so many young investors choose Roth first.