Retirement Accounts

401(k) / 403(b)

An employer-sponsored retirement account. Money is deducted straight from your paycheck (pre-tax, for a traditional 401(k)), lowering your taxable income now; you pay tax when you withdraw in retirement. Many employers offer a match — e.g. they add 50 cents for every dollar you contribute, up to some percent of your salary. Always contribute at least enough to get the full match — it's an immediate, guaranteed return on your money.

Traditional vs. Roth IRA

An IRA (Individual Retirement Account) is one you open yourself, independent of an employer, with its own yearly contribution limit.

• Traditional IRA: contributions may be tax-deductible now; withdrawals in retirement are taxed as income.

• Roth IRA: contributions are made with after-tax money now; withdrawals in retirement (including all the growth) are completely tax-free.

Rule of thumb: if you expect to be in a lower tax bracket in retirement than you are now, Traditional often wins. If you expect a similar or higher bracket in retirement (common for younger people early in their careers), Roth often wins. When unsure, splitting contributions between both is a reasonable hedge.

A sensible order of operations

1. Contribute enough to your 401(k) to get the full employer match.

2. Pay off high-interest debt.

3. Max out an IRA (Traditional or Roth).

4. Go back and increase your 401(k) contributions further (aim for 15% of pre-tax income across all retirement accounts).

This mirrors the order used in the interactive flowchart tool — check that out for the full picture, including HSAs and 529 plans.