The Roth IRA
What it is: a retirement account you fund with money you have ALREADY paid tax on. In exchange, the growth and the withdrawals come out tax-free in retirement.
Why it matters: you are not avoiding tax, you are choosing *when* to pay it. Roth = pay now at today's rate. The bet is that your rate later will be higher, or that decades of untaxed compounding is worth more than the deduction you skipped.
The mechanics that catch people out:
• Contributions (what you put in) can come out any time, tax and penalty free. *Earnings* cannot until 59½ and 5 years.
• There is an income limit to contribute directly.
• No required withdrawals in your lifetime — unlike a Traditional.
Chart: identical 8% returns, one taxed on gains, one not. The gap is the entire point, and it widens every year.