Trying to figure out which type of IRA is best for your retirement savings? You’re not alone. Many people get stuck on the same question — Should I open a Roth IRA or a Traditional IRA?
Both accounts are designed to help you save for retirement. Both come with tax benefits. But they work very differently. The better choice comes down to how you want to handle taxes, what your income looks like now, and what your goals are for the future.
Let’s walk through the key differences so you can make the decision that fits your plan.
What is a Traditional IRA?
A Traditional IRA is a tax-deferred retirement account.
That means your contributions may be tax-deductible now, depending on your income and whether you or your spouse has a retirement plan at work. Your money grows tax-deferred, and you’ll pay taxes when you withdraw it in retirement.
Why people like Traditional IRAs
- You may get a tax break up front
- Your money grows without being taxed until you use it
- It can reduce your taxable income today
- Great for people in a higher tax bracket now
This can be a solid option if your priority is lowering your taxes now and you expect to be in a lower tax bracket when you retire.
What is a Roth IRA?
A Roth IRA is a retirement account that works the opposite way.
You contribute money you’ve already paid taxes on, and it grows tax-free. When you retire, you can take out your money, including earnings, without paying any income tax, as long as the account has been open at least five years and you’re over 59½.
Why people love Roth IRAs:
- Tax-free income in retirement
- No taxes on investment growth
- More flexibility with withdrawals
- No required minimum distributions (RMDs) later in life
Roth IRAs are especially attractive to younger savers or people who expect their income and tax rate to rise over time.
Key Differences Between Roth and Traditional IRAs
Let’s look at how they stack up in the areas that matter most.
Tax treatment
- Traditional IRA: Pay taxes later
- Roth IRA: Pay taxes now
- Contribution limits (2025)
- Same for both: $7,000 if under 50, $8,000 if over 50
Income limits
- Traditional IRA: Anyone can contribute, but tax deduction may be limited by income
- Roth IRA: Income limits apply for contributions (phases out starting at $146,000 for singles or $230,000 for married couples filing jointly)
Withdrawal rules
- Traditional IRA: Penalties and taxes apply if withdrawn before 59½
- Roth IRA: You can withdraw your contributions anytime, no taxes or penalties
Required minimum distributions (RMDs)
- Traditional IRA: Yes, starting at age 73
- Roth IRA: No RMDs during your lifetime
Which One Should You Choose?
Here’s a simple way to think about it.
Choose a Traditional IRA if
- You want to lower your taxable income now
- You expect to be in a lower tax bracket in retirement
- You don’t qualify to contribute to a Roth IRA
- You’re looking for upfront tax savings
Choose a Roth IRA if
- You want tax-free income in retirement
- You’re in a lower tax bracket now
- You want flexibility with withdrawals
- You like the idea of not being forced to withdraw money later
Some people even choose both to diversify their retirement income and build tax flexibility in the future.
FAQs
1. Can I have both a Roth and a Traditional IRA?
Yes, you can contribute to both in the same year, as long as your combined contributions don’t exceed the annual limit.
2. Are there penalties for taking money out early?
Traditional IRAs come with taxes and penalties for early withdrawals. With Roth IRAs, you can withdraw contributions (but not earnings) anytime without penalty.
3. What if I make too much to contribute to a Roth IRA?
You might still be able to use a backdoor Roth IRA strategy by converting funds from a Traditional IRA.
4. Do IRAs come with employer matching?
No. Employer matching is usually only available through workplace plans like 401(k)s.
5. Which IRA is better for young professionals?
Often the Roth IRA is the better choice early on, since many younger workers are in lower tax brackets and benefit more from tax-free growth over time.
