Getting started on your retirement savings can be confusing for many, from figuring out which strategy is the best approach to just discerning the difference between account types, like a traditional IRA (individual retirement account) and a Roth IRA.

Maconomics Founder and CEO Ross Mac sits down with Brad Smith to explain the key differences between these retirement accounts and the next steps investors should take after simply opening these accounts.

"That money is just sitting there. Your next step is now, what I recommend, is putting that into an index fund — most commonly [an] S&P 500 [fund]," Mac says, going on to discuss employers' 401(k) contributions.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

BRAD SMITH: Well, age ain't nothing but a number. That's why it's never too early or too late to begin preparing for retirement. But there are so many options once you get started. Do you need a 401(k) or an IRA? What does that Roth mean? And what do you have to do once you open the account and start contributing?

Here to break this down for us as part of our simple finance segment, we've got Ross Mac, Maconomics founder and personal finance expert here with us. Ross, let's start with the basics. Traditional IRA versus a Roth IRA versus a 401(k), break down the difference between them?

ROSS MAC: I love breaking this down because, at the end of the day, right, more than half of Americans don't believe that they're going to be comfortable and ready to actually retire. And so one, you just got to get right into it, right. And so the big difference between all three of these is one, understand that they're all tax advantaged investment accounts, and they're going to differ on when and where they're taxed.

They're also going to differ on employer contributions, as well as some of the investment options. And so when you hear anything traditional, right, whether that's a 401(k) or a traditional Roth-- I'm sorry-- a traditional IRA just understand you're going to be taxed on the back end, meaning that you're going to have tax advantages on the front end, meaning that money is going to be able to come out of your tax-- I mean, I'm sorry-- money's going to be able to come out of your check, and that money is going to be invested.

However, once you make your withdrawals, and that's qualified at 59.5, that is when you will be taxed. Now, when it comes to a Roth IRA, one, here you, obviously, have more investment options, but your money is going to go in after tax. So literally you're thinking about I've already paid taxes. Now I can make contributions to my Roth IRA. And then once you take that money out at 59.5, that money will not be taxed.