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.

Overview

Table of Contents

Choosing between a Traditional IRA and a Roth IRA can significantly impact your retirement savings strategy. While both offer tax advantages, understanding their differences in tax treatment, contribution rules, and withdrawal benefits is key to making the best decision for your financial future. This guide breaks down the essentials to help you decide which account type aligns with your goals.

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Growth	Grows tax-deferred, so you pay no tax until the funds are withdrawn	Grows tax-free, meaning you never pay tax on the funds, even when withdrawn (assuming additional criteria is met)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	Roth Retirement Contributions
Tax Treatment: Contributions to traditional retirement accounts (like a 401(k) or Traditional IRA) are made with pre-tax dollars. This reduces your taxable income in the current year, lowering your overall tax bill. Contributing pre-tax dollars delays paying taxes until you withdraw the money in retirement. This can be beneficial if you expect to be in a lower tax bracket during retirement. Lowering your taxable income now may help you qualify for tax credits or deductions based on adjusted gross income (AGI). The tax treatment makes traditional accounts attractive for those wanting to reduce taxes today while saving for the future.	Tax Treatment: Contributions to Roth accounts (like Roth 401(k)s or Roth IRAs) are made with after-tax dollars. You pay taxes on the money before it is contributed, so no immediate tax deduction is available. Roth contributions don’t lower your taxable income in the contribution year. Investments grow tax-free inside the account. Qualified withdrawals in retirement are tax-free, including earnings. This tax structure benefits those expecting to be in a higher tax bracket in retirement or wanting tax-free income later. Essentially, you pay taxes now to avoid paying taxes on withdrawals in the future.
Tax Deferral: Investment earnings within a Traditional IRA grow tax-deferred, meaning you won’t pay taxes on dividends, interest, or capital gains while the funds remain in the account. This allows your money to compound over time without annual taxes reducing your returns. By deferring taxes until retirement withdrawals, you can potentially grow your nest egg faster than if earnings were taxed each year. Tax deferral is one of the biggest advantages of a Traditional IRA, giving you more control over when and how much you pay in taxes.	Tax-Free Growth: Investment earnings within a Roth IRA grow completely tax-free—no taxes on dividends, interest, or capital gains while funds remain in the account. This tax-free growth allows your investments to compound faster over time since gains aren’t reduced by annual taxes. Qualified withdrawals in retirement—generally after age 59½ and once the account has been open at least five years—are tax-free, including both contributions and earnings. This feature is especially valuable if you expect to be in a higher tax bracket later or want flexibility managing taxable income during retirement. Roth IRAs offer a powerful way to grow savings without worrying about taxes eroding your investment returns.
Taxation on Withdrawals: Withdrawals in retirement are subject to ordinary income tax. You’ll pay taxes on both the contributions you originally made and any investment earnings the account has gained over the years. Because you received a tax break up front, the IRS collects its share when you withdraw funds in retirement. It’s important to plan for this taxable income when estimating your retirement budget, since large withdrawals can push you into a higher tax bracket. Required minimum distributions (RMDs) begin at age 73, meaning you must start taking money out whether you need it or not.	Tax-Free Withdrawals: Withdrawals are completely tax-free if certain conditions are met, such as being at least age 59 1⁄2 and having the account open for at least five years. You won’t owe any income tax on the money you take out in retirement, which can help you better manage your taxable income later in life. Since you’ve already paid taxes on your contributions, you can withdraw contributions (but not earnings) at any time without penalty or tax. Unlike Traditional IRAs, Roth IRAs have no required minimum distributions (RMDs) during the account holder’s lifetime, allowing your money to keep growing as long as you like.
Who Can Contribute: Anyone with earned income can contribute, regardless of age, as long as they have taxable compensation for the year. There’s no income limit to make contributions. Whether you can deduct those contributions depends on your income and whether you or your spouse are covered by a workplace retirement plan. For many people, a Traditional IRA is an accessible way to set aside pre-tax dollars and potentially lower their taxable income each year they contribute.	Who Can Contribute: You need earned income to contribute to a Roth IRA. There are income limits that can reduce or eliminate your ability to contribute directly. If your modified adjusted gross income (MAGI) falls below the IRS thresholds, you can make full or partial contributions using after-tax dollars. Roth IRAs don’t have age restrictions for contributions. They can be a smart option if you expect to be in a higher tax bracket later or want tax-free withdrawals in retirement.

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

Your Tax Bracket Now, and in the Future:

One of the most important factors when choosing between a Traditional IRA and a Roth IRA is understanding your current tax bracket and how you expect it to change in retirement. If you anticipate being in a lower tax bracket after you stop working, contributing to a Traditional IRA may be more attractive because it offers an immediate tax deduction, reducing your taxable income today. This means you pay less in taxes now and defer taxes until retirement, when your income—and tax rate—may be lower. However, if you expect your income or tax rate to rise in the future, a Roth IRA might be better since you pay taxes upfront at your current rate, potentially saving money by avoiding higher taxes on withdrawals later. Considering projected tax brackets can help you make a tax-efficient decision that fits your long-term financial picture.

Your Time Horizon Until Retirement and Your Financial Goals:

The length of time you plan to keep your money invested before retirement significantly affects which IRA might suit you best. Roth IRAs offer the powerful benefit of tax-free growth, meaning all investment earnings can compound without ever being taxed, as long as withdrawals meet the qualified conditions. The longer your time horizon, the more advantageous this tax-free growth can be, especially if you expect your investments to appreciate significantly. If retirement is many years away, a Roth IRA allows you to maximize the benefit of compounding without the drag of taxes on earnings. Your specific financial goals—such as the amount you want to accumulate or how you plan to use your savings—should also influence your choice. For example, if you want more flexible access to your contributions before retirement, a Roth IRA offers greater withdrawal flexibility.

Your Overall Financial Situation:

Your current financial health and ability to handle tax payments today also play a critical role in deciding between a Traditional and Roth IRA. Since Roth IRA contributions are made with after-tax dollars, you need to be prepared to cover the tax bill on your contributions in the year you make them without jeopardizing your cash flow or financial stability. If paying taxes upfront would strain your budget or reduce your ability to meet other financial goals, a Traditional IRA might be a safer choice since it provides an immediate tax break. On the other hand, if you have the resources to pay taxes now, investing in a Roth IRA can offer valuable tax-free income down the line. Evaluating your overall financial situation ensures that your retirement strategy is both sustainable and aligned with your short- and long-term needs.

How Gelt Can Help

Gelt uses advanced AI technology with expert certified personal accountants to simplify your retirement planning and help you make smarter decisions between Traditional and Roth IRAs. By analyzing your unique financial situation, tax bracket, and long-term goals, we provide personalized guidance on which account type best fits your needs. Our platform, coupled with our team of CPA can project how different contribution strategies might impact your future taxes and retirement income, helping you optimize your savings and minimize surprises later. Whether you’re just starting to save or looking to refine your existing plan, Gelt makes it easy to navigate complex tax rules and maximize the benefits of your IRA contributions.