Roth IRA vs Traditional IRA: Which is Right for You

Compare Traditional IRA vs Roth IRA: Learn the key differences, tax benefits, and which retirement plan fits your goals best.

Table of Contents

When it comes to retirement planning, choosing between a Roth IRA and a Traditional IRA can feel like a financial fork in the road. Both accounts help you grow wealth in a tax-advantaged way, but the key difference lies in when you pay taxes.

The right choice depends on your income, tax bracket, and long-term strategy. Let’s break it down.

Feature	Traditional IRA	Roth IRA
Contributions	Made with pre-tax dollars, lowering taxable income now	Made with after-tax dollars, no deduction today
Growth	Grows tax-deferred, so you pay no tax until the funds are withdrawn	Grows tax-free, meaning you never pay tax on the funds, even when withdrawn (assuming additional criteria is met)
Withdrawals	Taxed as ordinary income	Tax-free (if 59½+ and funds are held in the account for 5+ years)
Required Minimum Distributions (RMDs)	Yes, starting at age 73	None during your lifetime
Contribution Limits	$7,000 ($8,000 if 50+)	$7,000 ($8,000 if 50+); phased out at higher incomes
Eligibility	Anyone with earned income	Subject to income phaseouts (i.e. single filers are phased out between ~$150k–$165k in 2025)

Traditional Retirement Contributions:

Tax Treatment: Contributions to traditional retirement accounts (such as a 401(k) or traditional IRA) are made with pre-tax dollars, reducing your taxable income in the current year.
Tax Deferral: Investment earnings within the account grow tax-deferred, meaning you won't pay taxes on gains as long as the funds remain in the account.
Taxation on Withdrawals: Withdrawals in retirement are subject to ordinary income tax. You'll pay taxes on both the contributions and the investment earnings when you take distributions.

Roth Retirement Contributions

Tax Treatment: Contributions to Roth retirement accounts (like a Roth 401(k) or Roth IRA) are made with after-tax dollars, so they don't provide an immediate tax deduction.
Tax-Free Growth: Investment earnings within the account grow tax-free. Qualified withdrawals in retirement, including earnings, are tax-free.
Tax-Free Withdrawals: As long as certain conditions are met (e.g., age 59½ and the account is at least five years old), withdrawals from a Roth account, including both contributions and earnings, are tax-free.

When deciding which type of retirement contribution is right for you, consider:

Your tax bracket now, and in the future: if you expect to be in a lower tax bracket during retirement, getting the tax benefit from a traditional contribution now may be more attractive
Your time horizon until retirement and your financial goals: Tax-free growth is a key benefit of a Roth contribution. Think about how long, and how much, you expect your contributions to grow
Your overall financial situation: Assess your ability to cover the taxes resulting from after-tax contribution without affecting your current financial stability.