IRA (traditional and Roth)
An IRA is a US retirement account you open yourself. A traditional IRA may lower your taxes now and is taxed when you withdraw; a Roth IRA is funded with taxed money and qualified withdrawals are tax-free.
🌍 In the real world
Which is better depends mostly on whether you expect a higher tax rate now or in retirement: people in a low bracket today often favor the Roth, and people in a high bracket the traditional. The yearly limit was $7,000 in 2025, or $8,000 from age 50. Roth contributions phase out above certain incomes.
Higher earners over the Roth limit sometimes use a "backdoor Roth": contributing to a traditional IRA without a deduction and converting it to a Roth, allowed for all incomes since 2010. It has tax traps, especially for people with other pre-tax IRA money, so it's worth checking the rules or a tax professional first.
Example
Put $7,000 in a Roth IRA at 25 and suppose it grows to $70,000 by retirement: a qualified withdrawal is tax-free. The growth is only an illustration; investments can also fall.
🎮 In Journey Shares
There's no IRA in the game. Its tax lesson is the same trade-off, though: when you're taxed depends on how long you hold. Shares held more than a week pay 15% on gains instead of 22%. →
🧭 How to use it
Think about when you'll be taxed, not just how much. In the game, selling a winner a little later can move it from the 22% rate to 15%.
🎮 Learn IRA (traditional and Roth) the fun way
Try it in a live 3D city with play money: trade shares in real public figures, get margin-called, pay your taxes and rob a bot or two. Free, and nothing real is at stake.
❓ Common questions
Can I have a 401(k) and an IRA?
Yes. The limits are separate, though a workplace plan can limit how much of a traditional IRA contribution you can deduct at higher incomes.
Can I take money out of a Roth IRA early?
Your contributions can come out at any time without tax or penalty. Earnings taken out early may be taxed and penalized unless an exception applies.
📜 Where it came from
🧩 Quick check
Which term is this?
“____ is interest earned on both your original money and the interest it has already earned, so savings grow faster over time.”
🔗 Related terms
- 401(k): A 401(k) is a US retirement account offered through an employer.
- Tax bracket: A tax bracket is a range of income taxed at one rate.
- Capital gains tax: Capital gains tax is tax on the profit from selling an investment for more than you paid.
- Compound interest: Compound interest is interest earned on both your original money and the interest it has already earned, so savings grow faster over time.
- Savings rate: Your savings rate is the share of your income you save or invest.
Categories: Personal finance
Practise with $10,000 in play money
Free. No real money involved.