Roth IRA vs. Traditional IRA: Which Is Best for Your Retirement?

A Roth IRA and traditional IRA both have the same goal: to help you save for retirement and ensure you don’t spend your golden years struggling to make ends meet. The key difference between a Roth and a traditional IRA is when taxes are applied to your investment. Both offer tax advantages you can’t get in a regular, non-retirement investment account. Both can help you reach your long-term savings goals. But there are fundamental tax differences between the two types of accounts.

Depending on your current and future tax situations, one account might give you an edge. Understanding the ins and outs of both types of accounts can help you decide which one is the better option to maximize your long-term savings.

How Does a Roth IRA Work?

A Roth IRA is a tax-deferred retirement investment account that allows for tax-free withdrawals on qualified distributions.

• Main benefits: Earnings grow tax-free; no mandatory distribution requirements or age limit on contributions; tax-free and penalty-free withdrawals of contributions
• Main drawbacks: No tax deduction on contributions; penalties may apply for early withdrawals; income restrictions on contributions
• Tax implications: No requirement to report income, dividends or capital gains within a Roth IRA; qualified withdrawals are tax-free
• Withdrawal rules: Can withdraw contributions at any time without paying taxes or penalties — excluding early withdrawals; no required minimum distributions
• Early withdrawal penalties: 10% early withdrawal penalty may apply if you withdraw earnings before age 59 1/2
• Income requirements and limitations: Contributions not allowed for individuals and couples whose income exceeds the allowed amounts

The Roth IRA is best if you expect to be in a higher tax bracket when you start taking withdrawals because you won’t be taxed on the distributions.

How Does a Traditional IRA Work?

A traditional IRA is a tax-deferred retirement account that offers income tax deductions on certain contributions.

• Main benefits: Tax deduction on eligible contributions; tax-deferred earnings growth
• Main drawbacks: Distributions taxed as ordinary income; early withdrawal penalties; required distributions when you reach a certain age; tax deductions for contributions limited by income
• Tax implications: Contributions and earnings grow tax-deferred until withdrawn; fully taxable when withdrawn; contributions can be tax-deductible
• Withdrawal rules: You can take money out of an IRA at any time, though penalties may apply if you take early withdrawals; required minimum distributions begin once you turn age 73
• Early withdrawal penalties: 10% penalty on early withdrawals before age 59 1/2 unless you qualify for exemptions
• IRA vs. Roth IRA contribution limits: Both let you contribute up to $7,000 in 2025 if you are younger than age 50, or $8,000 if you’re 50 or older

A traditional IRA is best suited for those who expect to be in the same or lower tax bracket when they start taking withdrawals. It’s also an appropriate vehicle if you want the benefit of a current tax deduction rather than waiting until retirement to enjoy the primary tax benefit.

Key Differences Between Roth IRA and Traditional IRA

Traditional and Roth IRAs have numerous important differences you will want to be aware of before making a choice. Here’s a rundown of some key differences between the two.

Eligibility for Roth IRA vs. Traditional IRA

One of the main benefits to IRAs, Roth or traditional, is their accessibility — especially to self-employed people who can’t take advantage of a 401(k) plan. However, a traditional IRA is a little easier to qualify for.

Anyone with taxable income is able to open and make contributions to a traditional IRA. On the other hand, to open and make contributions to a Roth IRA, the account holder must earn below certain income limits. For single filers, this limit for 2025 is $150,000 annually. The income limit for married filers is $236,000.

Pros and Cons of Roth IRA vs. Traditional IRA

When choosing between a Roth IRA and traditional IRA, it can be helpful to look at the pros and cons of each type of retirement account.

Roth IRA Pros and Cons

Roth IRA pros:

• Qualified distributions are not taxed — creating a tax-free income stream in retirement (well, technically you already paid taxes on it before, but the compound growth will be fully tax-free)
• When paired with another retirement account like a 401(k), it can help balance your tax plan; having one account that gives you tax advantages now and one that gives you tax advantages later
• There are no mandatory distributions, so you can access the money when you want/need to

Roth IRA cons:

• You can’t contribute to one if you earn above the income limit, making them inaccessible for many high-income earners
• You can’t deduct contributions from your taxes
• You can only contribute $7,000 a year ($8,000 if you’re above the age of 50)

Traditional IRA Pros and Cons

Traditional IRA pros:

• Contributions are tax-deductible, which can be especially beneficial if you’re in a high tax bracket
• Anyone can open and contribute to a traditional IRA regardless of income, making it one of the most accessible ways to save for retirement

Traditional IRA cons:

• Withdrawals are taxable, so you’ll get hit with taxes once you’re retired, which may hurt more if you’re in a higher tax bracket at that time
• You’re required to take distributions after age 73, regardless of whether you want/need to
• You can only contribute up to $7,000 per year ($8,000 if you’re over 50)

When To Choose a Roth IRA

There are a few different factor that may sway investors toward a Roth IRA as opposed to a traditional IRA. These include your tax bracket, age and if you contribute to other retirement accounts.

Your Tax Bracket

A Roth IRA is preferable if you anticipate being in a higher tax bracket after you retire than while you are working. Your net after-tax income will be higher if you’re taking withdrawals at a time when you’re in a high tax bracket.

For example, say you’re in the 15% tax bracket while working, but anticipate jumping up to the 22% bracket after you retire. If you contributed $1,000 to a traditional IRA while working, you’d get a $150 tax break. But you’d pay $220 in tax on that contribution when you withdraw it after retirement.

With a Roth IRA, the scenario plays out in reverse. You won’t get to save the $150 in taxes on your contribution — but you also won’t pay the $220 in tax on your withdrawal.

Your Age

A Roth IRA is usually preferred over a traditional IRA if you are a younger investor. If you start while you are young, the earnings in your Roth are likely to far exceed your contributions by the time you retire.

Although you missed out on the tax deductions you would have received by contributing to a traditional IRA, the tax-free treatment of your distributions should outweigh that benefit because your distributions will represent a much larger slice of your retirement pie.

Other Retirement Accounts

You might prefer a Roth IRA if your retirement will already be funded by other sources, such as a 401(k). You can continue to contribute indefinitely without taking mandatory distribution requirements. With a traditional IRA, you are forced to withdraw from your account even if you don’t need the money yet.

When To Choose a Traditional IRA

There are also factors that may make a traditional IRA the better option for you as compared to a Roth IRA.

Your Tax Bracket

If you expect that your current tax bracket is higher than the bracket you’ll be in during retirement, the better choice may be to contribute to a traditional IRA. In general, you’ll get greater benefit from a tax break when you’re being taxed at a higher rate; so deducting your IRA contributions now will put you in a better financial position if you anticipate being taxed at a lower rate later down the line.

Your Income: IRA vs. Roth IRA Income Limits

Sometimes you have no choice between a traditional IRA and a Roth IRA. If your income is too high to contribute to a Roth IRA, then a traditional IRA is obviously the only option.

Converting a Traditional IRA to a Roth IRA

If you already have a traditional IRA but would like to open a Roth IRA instead, it’s possible to do what’s called a “Roth conversion.” This process involves taking the funds from your existing IRA and moving them into a Roth IRA. While you’ll have to pay taxes on the money when you convert it, after it’s in the Roth it’ll be able to grow tax-free and you can take tax-free distributions later.

To contribute to the Roth IRA, however, you need to meet the criteria, which means your income must be less than or within the phase-out range of $150,000 to $165,000 for single filers and $236,000 to $246,000 for married filers. If your income is higher, you can still do what’s called a “backdoor Roth IRA,” where you transfer your IRA funds into a Roth and pay taxes on the money you convert. But you will not be able to make further contributions as long as your income exceeds the annual limit.

It’s important to keep in mind that once you do a Roth conversion, you will not be able to revert the money back into a traditional IRA. You will also not be able to make penalty-free withdrawals for a five-year period after the conversion.

Final Thoughts: Choosing Between Roth IRA and Traditional IRA

The biggest selling point of a traditional IRA is the advantage of tax-deferred growth. It’s a good option if you are on a tight budget and don’t want to be taxed on your contributions. But that doesn’t mean it’s the best investment vehicle for everyone.

Roth IRAs offer more flexibility, which is important considering that the tax landscape and your finances might change. You don’t know today what tax bracket you’ll be in during retirement. So think twice before giving up the features of a Roth IRA just because you don’t want to pay taxes now. Above all, what matters right now is saving for retirement.

Vance Cariaga contributed to the reporting for this article. 

This article originally appeared on GOBankingRates.com: Roth IRA vs. Traditional IRA: Which Is Best for Your Retirement?

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