Confused on setting up my Iphone with itunes?

I have an ipod touch which has music on it that I want to put onto my new iphone. When I plug in my iphone it asks if i want to set it up as a new phone or restore from the backup, which is my ipod. I don't want all the contact info, apps, etc. From my ipod going onto my iphone I only want the music. So if I select set up as a new phone does that mean all the music and everything gets erased from itunes?

Which one should I pick?

No the music from iTunes doesn't get erase just set it up as new

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