The core difference: when you pay taxes

A traditional IRA lets you put money in before taxes are taken out, which lowers your taxable income in the year you contribute. You pay taxes later, when you withdraw the money in retirement. A Roth IRA works the opposite way: you contribute money that has already been taxed, but then your withdrawals in retirement are tax-free.

That single difference—when the tax bill arrives—shapes almost everything else about how each account works. It affects how much you can contribute each year, when you have to start taking money out, and who benefits most from each type.

Key Takeaways

  • Traditional IRAs reduce your taxable income now but require you to pay income tax on withdrawals later; Roth IRAs use after-tax money now but let you withdraw tax-free in retirement.
  • You can contribute to a traditional IRA at any age, but Roth contributions have income limits that phase out if you earn above a certain amount.
  • Traditional IRAs require you to start withdrawing money at age 73; Roth IRAs have no required withdrawals during your lifetime.
  • If you expect to be in a lower tax bracket in retirement, a traditional IRA usually makes more sense; if you expect to be in a higher bracket, a Roth is often the better choice.

How contributions work and what they cost you

With a traditional IRA, your contribution reduces your adjusted gross income for that tax year. If you earn $60,000 and contribute $7,000 to a traditional IRA, your taxable income drops to $53,000. That means you pay less in federal income tax right away. The catch: that $7,000 grows tax-free inside the account, but when you withdraw it at 65 or 75, you owe income tax on the full amount you take out.

With a Roth IRA, you contribute money you have already paid taxes on. That $7,000 comes from your after-tax paycheck, so it does not lower your taxable income this year. But once it is in the Roth, it grows completely tax-free, and you never pay tax on those withdrawals—not on the original $7,000 and not on any growth it earned.

The annual contribution limit is the same for both: $7,000 for 2024 if you are under 50, or $8,000 if you are 50 or older. The difference is what happens to your tax bill, not how much you can put in.

Income limits and who can contribute

Anyone with earned income can open and contribute to a traditional IRA, no matter how much money they make. There is no income ceiling. However, if you or your spouse have access to a workplace retirement plan (like a 401(k)), the tax deduction for your traditional IRA contribution phases out at higher income levels. In 2024, that phase-out starts around $77,000 for single filers and $123,000 for married couples filing jointly, though the exact numbers change each year.

Roth IRAs have strict income limits. In 2024, you cannot contribute to a Roth if your modified adjusted gross income exceeds roughly $161,000 as a single filer or $240,000 as a married couple filing jointly. If you earn above those thresholds, a Roth is not an option for you—at least not through a direct contribution. Some higher earners use a "backdoor Roth" strategy, which involves contributing to a traditional IRA and then converting it, but that is a separate process with its own rules.

Required withdrawals and flexibility

Traditional IRAs force you to start taking money out at age 73. These are called required minimum distributions, or RMDs. The IRS calculates how much you must withdraw each year based on your age and account balance. If you do not take out the required amount, you face a penalty of 25 percent on the shortfall (reduced to 10 percent if you correct it within two years). You cannot simply leave the money alone to keep growing.

Roth IRAs have no required withdrawals while you are alive. You can leave the money untouched for as long as you want, which means it keeps growing tax-free. This makes a Roth useful if you do not need the money in retirement or if you want to leave it to heirs. Your beneficiaries will have to withdraw it eventually, but you do not.

Both accounts let you withdraw your contributions (not the earnings) at any time without penalty. With a Roth, you can also withdraw earnings penalty-free if you are 59½ and have held the account for at least five years. With a traditional IRA, any withdrawal before 59½ is usually taxed as income and hit with a 10 percent penalty, though some exceptions exist (like first-time home purchase, up to $10,000 lifetime).

Tax brackets and which one saves you more

The choice between traditional and Roth often comes down to whether you think your tax rate will be higher or lower in retirement. If you are in a high tax bracket now and expect to be in a lower one when you retire, a traditional IRA makes sense: you get the deduction when taxes are expensive, and you pay taxes later when they are cheaper. If you are in a lower bracket now and expect to be in a higher one later—or if you simply want to lock in current tax rates—a Roth is usually the better move.

This is not just theory. Someone earning $120,000 today in the 22 percent federal tax bracket saves $1,540 in taxes by putting $7,000 into a traditional IRA. But if that same person expects to withdraw $100,000 a year in retirement and be in the 24 percent bracket, they will pay $24,000 in taxes on those withdrawals. A Roth would have cost them $1,540 in taxes upfront but saved them the $24,000 later.

Employer plans and how they interact

If your employer offers a 401(k), 403(b), or similar plan, that affects your traditional IRA strategy. If you are covered by a workplace plan, your ability to deduct traditional IRA contributions phases out at the income limits mentioned earlier. You can still contribute to a traditional IRA, but you may not get the tax deduction—which defeats much of the purpose.

Roth IRAs are not affected by workplace plans. You can have a 401(k) and a Roth IRA at the same time, and your Roth contributions do not depend on whether your employer offers a plan. This is one reason Roth accounts are popular with higher earners: they can max out a 401(k) at work and still contribute to a Roth on the side.

Conversions and changing your mind

You can convert money from a traditional IRA to a Roth IRA at any time. When you do, you pay income tax on the amount converted in that tax year, but the money then grows tax-free in the Roth. This is how higher earners get around the Roth income limits: they contribute to a traditional IRA (which has no income limit) and then convert it to a Roth. The conversion itself is taxable, but it is legal.

You cannot undo a conversion, so it is worth thinking through before you do it. If you convert $50,000 and the market drops the next week, you still owe taxes on the full $50,000. Some people do "partial conversions" over several years to spread out the tax hit.

Frequently Asked Questions

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

Yes. Your combined contributions to both accounts cannot exceed the annual limit ($7,000 in 2024 for those under 50), but you can split that money between them however you want. Many people use both: a traditional IRA for the immediate tax deduction and a Roth for tax-free growth later.

Which one is better if I am young and just starting out?

Most young people benefit from a Roth because they are in a low tax bracket now and likely to be in a higher one later. You also have decades for the money to grow tax-free. But if you are in a high-income job now and expect to earn less in retirement, a traditional IRA might save you more in taxes overall.

What happens to my IRA when I die?

Your heirs inherit the account, but they must withdraw the money within ten years (with some exceptions for spouses). With a traditional IRA, they pay income tax on withdrawals. With a Roth, withdrawals are tax-free. This is another reason Roths are useful for leaving money to family.

Can I withdraw my money early without penalty?

With a Roth, you can withdraw your contributions anytime penalty-free. With a traditional IRA, early withdrawals before 59½ are taxed as income and usually hit with a 10 percent penalty, though exceptions exist for things like first-time home purchase (up to $10,000 lifetime) or medical expenses.

Do I have to choose one or the other, or can I change later?

You can convert a traditional IRA to a Roth at any time, though you will owe income tax on the conversion. You cannot convert a Roth back to a traditional IRA. Many people start with a traditional IRA and convert later when it makes sense.