A Traditional IRA gives you a tax deduction now but taxes withdrawals in retirement. A Roth IRA provides no upfront tax break but offers completely tax-free withdrawals. The right choice depends on whether you expect to be in a higher or lower tax bracket when you retire.
Both are powerful retirement tools—understanding when to use each can save you thousands in lifetime taxes.
Quick Comparison: Traditional vs Roth IRA
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Contributions | Pre-tax (tax-deductible) | After-tax |
| Growth | Tax-deferred | Tax-free |
| Withdrawals | Taxed as income | Tax-free |
| 2024 Contribution limit | $7,000 ($8,000 if 50+) | $7,000 ($8,000 if 50+) |
| Income limits (contributions) | None, but deduction may be limited | Yes ($146K-$161K single) |
| Required distributions | Yes, at age 73 | No |
| Early withdrawal | 10% penalty + taxes (exceptions exist) | Contributions tax/penalty-free anytime |
How Traditional IRAs Work
Tax Treatment
Contributions: Tax-deductible (if eligible), reducing your taxable income in the contribution year.
Growth: Tax-deferred. Investments grow without annual tax drag.
Withdrawals: Taxed as ordinary income at your retirement tax rate.
Example
- You earn $60,000 and contribute $7,000 to a Traditional IRA
- Your taxable income drops to $53,000
- At 22% tax bracket, you save $1,540 in taxes this year
- In retirement, you withdraw $7,000 and pay taxes then
Deduction Limits
If you (or your spouse) have a workplace retirement plan, Traditional IRA deductions phase out at certain income levels:
Single, covered by workplace plan (2024):
- Full deduction: Under $77,000
- Partial deduction: $77,000 - $87,000
- No deduction: Above $87,000
Married, covered by workplace plan (2024):
- Full deduction: Under $123,000
- Partial deduction: $123,000 - $143,000
- No deduction: Above $143,000
Without a workplace plan, there’s no income limit for deductions.
How Roth IRAs Work
Tax Treatment
Contributions: After-tax. No tax deduction, no reduction in current taxable income.
Growth: Tax-free. Investments grow without ever being taxed.
Withdrawals: Completely tax-free in retirement (qualified distributions).
Example
- You earn $60,000 and contribute $7,000 to a Roth IRA
- Your taxable income remains $60,000
- You pay taxes now at your current rate
- In retirement, you withdraw any amount—$7,000 or $700,000—tax-free
For a detailed deep-dive, see our complete Roth IRA guide.
Income Limits
Unlike Traditional IRAs, Roth IRAs have income limits for contributions:
Single (2024):
- Full contribution: Under $146,000
- Partial contribution: $146,000 - $161,000
- No contribution: Above $161,000
Married filing jointly (2024):
- Full contribution: Under $230,000
- Partial contribution: $230,000 - $240,000
- No contribution: Above $240,000
High earners can use the “backdoor Roth” strategy: contribute to a non-deductible Traditional IRA, then convert to Roth.
The Core Decision: Taxes Now vs Taxes Later
Choose Traditional IRA When:
You’re in a high tax bracket now (32%+). The immediate deduction saves significant taxes. If you expect to be in a lower bracket in retirement, you’ll pay less tax overall.
You need to reduce current taxable income. Each $7,000 contribution reduces your tax bill by ($7,000 × your marginal rate).
You expect lower income in retirement. Many retirees drop to lower brackets, making taxed withdrawals less painful.
You’re not eligible for Roth contributions. Income above Roth limits means Traditional IRA (or backdoor Roth) is your option.
Choose Roth IRA When:
You’re in a lower tax bracket now (12-22%). Paying taxes at low rates now beats paying at potentially higher rates later.
You expect higher income in retirement. Growing retirement accounts, rental income, or Social Security may push you into higher brackets.
Tax rates may increase. If you believe tax rates will rise, locking in today’s rates via Roth makes sense.
You want tax-free flexibility. Roth withdrawals don’t affect Social Security taxation or Medicare premiums.
You’re young with decades of growth ahead. Tax-free compound growth over 30-40 years is enormously valuable.
Age-Based Guidelines
In Your 20s-30s (Choose Roth)
- Lower income typically means lower tax bracket
- Decades of tax-free growth ahead
- Future tax rates uncertain (Roth removes the risk)
- Career earnings likely to increase
In Your 40s-50s (Consider Both)
- Often in peak earning years
- Traditional IRA deduction may be limited
- Tax diversification valuable (have both types)
- Shorter time horizon than younger savers
In Your 60s+ (Situation Dependent)
- If still working in high bracket: Traditional IRA may help
- Converting Traditional to Roth can make sense in low-income years
- Consider impact on RMDs, Social Security taxation, Medicare premiums
Required Minimum Distributions (RMDs)
Traditional IRA RMDs
Starting at age 73, you must withdraw minimum amounts annually:
| Age | Distribution Period | Approximate % |
|---|---|---|
| 73 | 26.5 years | 3.77% |
| 75 | 24.6 years | 4.07% |
| 80 | 20.2 years | 4.95% |
| 85 | 16.0 years | 6.25% |
RMDs are taxed as ordinary income. Large Traditional IRA balances can push retirees into higher tax brackets.
Roth IRA: No RMDs
Roth IRAs have no required distributions during the owner’s lifetime. Benefits:
- Money continues growing tax-free
- Flexibility to withdraw when needed
- Larger inheritance for beneficiaries
- No forced taxable income
This is a significant Roth advantage, especially for those who don’t need all their retirement savings.
Withdrawal Rules Comparison
Traditional IRA Withdrawals
- Before 59½: 10% penalty + income taxes (exceptions exist)
- After 59½: No penalty, taxed as income
- RMDs at 73: Must begin withdrawing
Roth IRA Withdrawals
Contributions (what you put in):
- Withdraw anytime, any age—tax and penalty-free
- No questions asked—it’s your money
Earnings (growth):
- Before 59½: May face taxes and 10% penalty
- After 59½ (and 5-year rule met): Completely tax-free
This flexibility makes Roth IRAs more accessible for emergencies while still providing retirement benefits.
Investment Strategies for Both
Regardless of Traditional or Roth, the investment approach is similar:
Use Low-Cost Index Funds
Both account types benefit from index fund investing. Total market funds provide diversification at minimal cost.
Consider Asset Location
Some investors strategically place investments:
- Tax-inefficient assets (bonds, REITs) in Traditional IRA—tax deferral shields annual income
- High-growth assets (stocks) in Roth—maximum benefit from tax-free growth
This “asset location” optimization is secondary to simply saving consistently.
Dollar-Cost Average
Regular contributions via dollar-cost averaging smooths out market volatility regardless of IRA type.
Roth Conversion Strategy
What Is a Roth Conversion?
Moving money from a Traditional IRA to a Roth IRA. You pay taxes on the converted amount now, but future growth and withdrawals are tax-free.
When Conversions Make Sense
- Low-income years: Sabbaticals, between jobs, early retirement before Social Security
- Early retirement: Convert while in low brackets before RMDs begin
- Market downturns: Converting when account value is down means lower tax on conversion
- Estate planning: Roth passes tax-free to heirs
Conversion Considerations
- Conversion is taxable income—budget for the tax bill
- No 10% penalty on conversions (unlike early withdrawals)
- 5-year rule applies to converted amounts for penalty-free withdrawal
- Can be done in partial amounts across multiple years
Having Both: Tax Diversification
Many financial planners recommend having both Traditional and Roth accounts. This provides:
Flexibility in retirement:
- Withdraw from Traditional in low-tax years
- Use Roth in high-tax years
- Manage income to optimize taxes, Social Security, Medicare premiums
Hedge against tax uncertainty:
- If rates go up: Roth withdrawals stay tax-free
- If rates go down: Traditional withdrawals cost less
Multiple income sources:
- Taxable, tax-deferred, and tax-free buckets
- Greater control over your retirement tax situation
Comparison With 401(k)
Many people have access to both workplace 401(k)s and individual IRAs. Common strategy:
- 401(k) up to employer match (free money)
- Max Roth IRA ($7,000)
- Additional 401(k) contributions if possible
The 401(k) vs IRA decision is separate from Traditional vs Roth. You can have a Traditional 401(k) plus a Roth IRA, or Roth 401(k) plus Traditional IRA—whatever combination suits your tax situation.
Frequently Asked Questions
Can I contribute to both Traditional and Roth IRA?
Yes, but the combined limit is $7,000 ($8,000 if 50+). You can split it any way you want—$3,500 to each, or all to one.
What if I contribute to a Roth but my income is too high?
You’ll need to “recharacterize” the contribution as Traditional, or withdraw it and pay penalties. Consider backdoor Roth if you’re a high earner.
Should I convert my Traditional IRA to Roth?
It depends on your current tax rate, expected future rate, and ability to pay conversion taxes. Converting makes sense in low-income years.
Can I have an IRA if I have a 401(k)?
Yes. Having a workplace plan affects Traditional IRA deduction limits, but you can always contribute. Roth IRAs have income limits regardless of workplace plans.
Which is better for young people?
Generally Roth. Lower current tax rates, decades of tax-free growth, and future tax rate uncertainty all favor Roth for young investors.
At what income should I switch from Roth to Traditional?
No universal answer, but common guidance: consider Traditional when in the 32%+ bracket (roughly $182,000+ single, $364,000+ married).
Key Takeaways
Both IRAs are excellent retirement savings vehicles:
- Traditional IRA: Tax break now, taxes later. Best for high earners expecting lower retirement income.
- Roth IRA: No tax break now, tax-free forever. Best for lower earners expecting stable or rising income.
- Contribution limits are shared: $7,000 total across both types
- Both should use low-cost index funds for investing
- Tax diversification (having both) provides flexibility
- Start now—the best time to open an IRA is today
Your Next Steps
- Determine your current marginal tax bracket
- Estimate your expected retirement tax bracket
- If lower now → lean toward Roth
- If higher now → lean toward Traditional (or contribute to both)
- Open an account at a low-cost broker (Vanguard, Fidelity, Schwab)
- Choose broad index funds
- Set up automatic monthly contributions
- Review annually and adjust as income changes
Whether Traditional or Roth, the most important step is starting. Time in the market and consistent contributions matter more than optimizing which account type you use. Start today, and let decades of compound growth build your retirement security.
Written by Maira Azhar. Fact-checked by Usman Saadat.