Choose based on your tax bracket now versus your expected bracket in retirement

A traditional IRA reduces your taxable income this year; you pay taxes on the money when you withdraw it in retirement. A Roth IRA takes after-tax dollars now, but withdrawals in retirement are tax-free. The choice comes down to one question: do you expect to be in a higher tax bracket now or in retirement?

If you are in a high tax bracket today and expect to be in a lower one in retirement, a traditional IRA usually makes sense. If you are in a lower bracket now and expect to earn more later, or if you simply want tax-free growth, a Roth is often the better move. But income limits, employer plans, and your timeline all shift the math.

Key Takeaways

  • Traditional IRA contributions reduce your taxable income this year if you do not have access to a workplace retirement plan, or if your income is below the phase-out range.
  • Roth IRA contributions are made with after-tax money, but you owe no taxes on withdrawals or growth after age 59½, and there is no required withdrawal age.
  • If your employer offers a 401(k) or similar plan, you may not be able to deduct traditional IRA contributions, even if you have a traditional IRA.
  • Roth IRAs have income limits that phase out completely at higher earnings; traditional IRAs do not, but the tax deduction phases out if you have a workplace plan.
  • You can convert a traditional IRA to a Roth at any time, but you will owe income tax on the converted amount in that tax year.

When a traditional IRA makes the most sense

Choose a traditional IRA if you want to lower your taxable income right now and believe you will be in a lower tax bracket when you retire. The tax deduction is immediate and straightforward: you contribute up to $7,000 per year (or $8,000 if you are 50 or older as of 2024), and that amount reduces your adjusted gross income on your tax return.

This works best if you are self-employed or have no access to a workplace retirement plan. If your employer offers a 401(k), 403(b), or similar plan, the deduction phases out once your income exceeds a certain threshold. For 2024, if you are single and covered by a workplace plan, the deduction begins to phase out at $77,000 in income and disappears entirely at $87,000. If you are married filing jointly and your spouse has a workplace plan, the phase-out range is $123,000 to $143,000.

A traditional IRA also makes sense if you have already maxed out your 401(k) contributions and want additional tax-deferred savings. You will owe income tax on withdrawals starting at age 73, when required minimum distributions (RMDs) begin.

When a Roth IRA is the better choice

Open a Roth IRA if you expect to earn more in retirement than you do now, or if you simply want the certainty of tax-free withdrawals. Because you contribute after-tax dollars, you get no deduction this year, but your money grows tax-free and you owe nothing when you withdraw it after age 59½.

Roth IRAs are especially valuable if you are early in your career, in a lower tax bracket, or self-employed with variable income. The longer your money sits in the account, the more growth compounds tax-free. A Roth also has no required minimum distributions during your lifetime, so you can leave the money untouched if you do not need it, letting it grow for decades or pass to heirs tax-free.

The catch: Roth IRAs have income limits. For 2024, the ability to contribute phases out if you are single and earn between $146,000 and $161,000, or married filing jointly and earn between $230,000 and $240,000. Above those limits, you cannot contribute directly to a Roth, though you may be able to use a backdoor Roth conversion (see below).

Income limits and the backdoor Roth strategy

If your income exceeds the Roth phase-out range, you have two options: contribute to a traditional IRA and convert it to a Roth, or use a backdoor Roth strategy. A backdoor Roth involves contributing to a traditional IRA (which has no income limit) and then immediately converting it to a Roth. You will owe income tax on any earnings that accumulated during the conversion, but the strategy itself is legal.

The backdoor Roth works cleanly only if you have no other traditional, SEP, or SIMPLE IRAs with pre-tax balances. If you do, the IRS applies a pro-rata rule: when you convert, you owe tax on a portion of all your traditional IRA balances, not just the converted amount. This can make the strategy expensive or pointless. Consult a tax professional before attempting a backdoor Roth if you have existing traditional IRA balances.

How employer plans affect your choice

If your employer offers a 401(k), 403(b), or similar plan, prioritize that first. Most employers match contributions up to a certain percentage, which is assistance programs. Contribute enough to capture the full match before opening an IRA.

Once you have maxed the employer match, the decision between traditional and Roth becomes clearer. If you have already maxed your 401(k) and want to save more, you can contribute to either a traditional or Roth IRA, but the traditional deduction will phase out if your income is high enough. Many high earners use a combination: max the 401(k), use a backdoor Roth for additional savings, and keep a traditional IRA only if they are self-employed or have no workplace plan.

Tax brackets and the long-term math

The core decision hinges on tax rates. If federal income tax rates are higher in retirement than they are now, a Roth wins. If rates are lower in retirement, a traditional IRA wins. But predicting future tax rates is difficult, and tax law changes.

One way to hedge is to split contributions between both account types. Contribute to a traditional IRA for the immediate tax break, and also fund a Roth if you can afford it. This gives you flexibility in retirement: you can withdraw from the traditional IRA when you are in a lower bracket and let the Roth grow untouched, or vice versa. Over decades, this flexibility often outweighs the cost of splitting contributions.

Conversion timing and tax consequences

You can convert a traditional IRA to a Roth at any time, but the entire converted amount is treated as income in the year of conversion. If you convert $50,000, you owe income tax on $50,000 in that tax year. This can push you into a higher tax bracket, so conversions are usually done in years when your income is unusually low (a job loss, sabbatical, or early retirement before Social Security begins).

Some people use a "Roth conversion ladder" to retire early: they convert a portion of their traditional IRA to a Roth each year, pay tax on the conversion, and then withdraw from the Roth five years later (after the conversion seasoning period). This strategy requires careful planning and is best done with a tax professional.

Frequently Asked Questions

Can I have both a traditional and Roth IRA at the same time?

Yes. Your total contributions to both accounts combined cannot exceed $7,000 per year (or $8,000 if you are 50 or older), but you can split that between them however you want. Many people maintain both to hedge their bets on future tax rates.

What happens if I withdraw money from a Roth IRA before age 59½?

You can withdraw your contributions (the money you put in) anytime, tax-free and penalty-free. Withdrawals of earnings before age 59½ are subject to income tax and a 10% penalty, unless you may have access to for an exception like a first-time home purchase (up to $10,000 lifetime) or a disability.

Do I have to take required minimum distributions from a Roth IRA?

No, not during your lifetime. This is one of the biggest advantages of a Roth: you can let the money grow indefinitely and withdraw only what you need. Your heirs will owe taxes on inherited Roth earnings, but the account itself remains a powerful wealth-building tool.

If I have a 401(k) at work, can I still deduct a traditional IRA contribution?

Only if your income is below the phase-out range. For 2024, single filers covered by a workplace plan can deduct contributions only if they earn less than $77,000. Above that, the deduction phases out and disappears at $87,000. If you are married filing jointly and your spouse has a workplace plan, the limits are $123,000 to $143,000.

What is the pro-rata rule, and why does it matter for backdoor Roths?

The pro-rata rule says that when you convert a traditional IRA to a Roth, the IRS treats all your traditional, SEP, and SIMPLE IRAs as one pool. If 20% of that pool is pre-tax money, you owe tax on 20% of the conversion. This can make backdoor Roths expensive if you have other traditional IRA balances, so check your total before converting.