Roth vs. Traditional IRA: What Teens and Parents Should Know

FinStrike helps teens build real-world money skills through a four-year financial literacy curriculum, a Smart Tutor that helps students around the clock, and extensive free resources for parents and students.

If you're a teen, retirement might feel like it’s a million years away. But here’s a secret: The earlier you start, the less you actually have to save. Seriously. Small amounts invested early become massive amounts later, thanks to the magic of compound interest.

Two of the best ways to start investing early are Roth and Traditional IRAs. Let’s break these down so you know exactly what they mean and why you should care right now.

Roth IRA: Pay Taxes Now, Never Later

Think of a Roth IRA as paying taxes now to avoid them later. Here’s how it works: You put money into a Roth IRA after you’ve already paid taxes on it. That means your money grows tax-free forever. When you retire and take that money out, it’s all yours—no taxes, ever.

Why is this cool for teens? Your tax rate is probably super low right now (or maybe even zero). You’re basically paying nothing now to save big later. And guess what? You can open a Roth IRA as soon as you have earned income, even as a teenager.

Traditional IRA: Skip Taxes Now, Pay Them Later

A Traditional IRA flips this idea around. You get to skip paying taxes now. The money you put into a Traditional IRA lowers your current taxable income, giving you a tax break upfront. Sounds good, right?

But here’s the catch: You’ll pay taxes when you withdraw the money in retirement. Why might you choose this option? Well, if your income is higher now and you expect to be in a lower tax bracket when you retire, a Traditional IRA might be a good choice.

Why Teens Should Usually Go Roth

Let’s keep it simple: Most teens don’t earn enough to make a big tax break from a Traditional IRA worthwhile. Your tax bracket is probably low now and likely higher later, making Roth IRAs the smarter long-term play.

How Early Can You Open One?

Here’s the fun part: you don’t need to wait. As long as you have earned income, think babysitting, lawn mowing, or any legitimate job, you can open an IRA. Even better, parents can help their kids get started. If you make $500 babysitting this year, you or your parents can put that $500 right into your Roth IRA.

Imagine investing a few hundred bucks now and letting it sit for decades, growing tax-free. By the time you retire, that small investment can balloon into tens of thousands of dollars.

Start Now, Win Later

Retirement accounts aren’t just for adults with gray hair. They’re one of the smartest moves teens can make today. Roth or Traditional? For teens, it’s usually Roth. But whichever you choose, starting early puts you miles ahead of everyone else your age.

The bottom line? Start investing now, and your future self will thank you. Big time.