The core difference: when you pay taxes

A traditional IRA lets you deduct contributions from your income taxes now, but you pay taxes on the money when you withdraw it in retirement. A Roth IRA takes the opposite approach: you contribute money that has already been taxed, and then withdrawals in retirement are tax-free.

Think of it as choosing when to pay the tax bill. With a traditional IRA, you delay it. With a Roth IRA, you pay it upfront and never again. Which one makes sense depends on whether you expect to be in a higher or lower tax bracket when you retire.

Key Takeaways

  • Traditional IRA contributions reduce your taxable income this year, but withdrawals in retirement are taxed as ordinary income.
  • Roth IRA contributions are made with after-tax money, but may have access to withdrawals in retirement are completely tax-free.
  • Income limits restrict who can contribute to a Roth IRA, but there are no income limits for traditional IRA contributions.
  • Traditional IRAs require you to start taking withdrawals at age 73, while Roth IRAs have no required withdrawal age during your lifetime.
  • Roth IRAs allow you to withdraw contributions (not earnings) at any time without penalty, while traditional IRAs penalize early withdrawals before age 59½.

How contributions work and what they cost you

With a traditional IRA, your contribution reduces your taxable income for that year. If you earn $60,000 and contribute $7,000 to a traditional IRA, you only report $53,000 as taxable income. That means you pay less in federal income tax immediately. The trade-off is that when you withdraw that $7,000 plus any growth in retirement, you owe income tax on the full amount.

With a Roth IRA, you get no tax deduction now. You contribute $7,000 from money you have already paid taxes on. But that $7,000, plus all the growth it earns over decades, comes out tax-free in retirement. You never file a tax form for those withdrawals.

The amount you can contribute to either type of IRA is the same: for 2024, the limit is $7,000 per year if you are under 50, or $8,000 if you are 50 or older. You can contribute to both types in the same year, but your combined contributions cannot exceed the annual limit.

Income limits: who can actually open each type

Anyone with earned income can open and contribute to a traditional IRA, no matter how much money they make. There are no income limits.

Roth IRAs have income limits that change each year. For 2024, you can contribute the full amount if your income is below $146,000 (single) or $230,000 (married filing jointly). Above those thresholds, your contribution amount phases out, and above higher limits, you cannot contribute directly to a Roth at all. These numbers increase slightly each year.

If your income is too high for a Roth IRA, some people use a workaround called a "backdoor Roth," where they contribute to a traditional IRA and then convert it to a Roth. This is legal but has tax complications if you already have other traditional IRAs.

Withdrawals before retirement: penalties and exceptions

Traditional IRAs penalize you for withdrawing money before age 59½. You pay a 10% penalty on the amount withdrawn, plus you owe income tax on it. There are exceptions—you can withdraw without penalty for a first home purchase (up to $10,000 lifetime), medical expenses, disability, or a few other specific situations—but otherwise, early withdrawal is expensive.

Roth IRAs are more flexible. You can withdraw your contributions (the money you put in) at any time, tax-free and penalty-free. You cannot withdraw the earnings (the growth) without penalty before age 59½, but the ability to access your contributions is a real advantage if you need the money.

Required withdrawals in retirement

Traditional IRAs require you to start taking withdrawals at age 73. The IRS calculates a minimum amount based on your age and account balance, and you must withdraw at least that much each year. If you do not, you face a 25% penalty on the amount you should have withdrawn (or 10% if you correct it within two years). These withdrawals are taxed as ordinary income.

Roth IRAs have no required withdrawal age during your lifetime. You can leave the money untouched for as long as you want, and it keeps growing tax-free. This makes Roths useful if you do not need the money in retirement or want to leave a larger inheritance.

Tax brackets and which account makes sense for you

If you expect to be in a lower tax bracket in retirement than you are now, a traditional IRA usually makes more sense. You get a tax deduction when your income (and tax rate) is high, and you pay taxes in retirement when your income is lower. This is common for people who will have much less income after they stop working.

If you expect to be in the same tax bracket or a higher one in retirement, a Roth IRA often makes more sense. You pay taxes now at your current rate and avoid taxes later at a potentially higher rate. Younger workers often benefit from Roths because they have decades for the money to grow tax-free, and they may earn more in retirement than they do now.

If you are unsure, remember that you can use both. You might contribute to a traditional IRA in years when your income is very high, and a Roth in other years. There is no rule against splitting your contributions between the two types.

Conversions: moving money from traditional to Roth

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 year, but the money then grows tax-free in the Roth. This is useful if you have a year with unusually low income, or if you expect tax rates to rise in the future.

Conversions are permanent—you cannot undo them. And if you have multiple traditional IRAs, the IRS treats them as one account for tax purposes when you convert, which can create unexpected tax bills. This is where the backdoor Roth complication comes in: if you already have a traditional IRA with money in it, a backdoor Roth conversion becomes more expensive.

Frequently Asked Questions

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

Yes. You can own both types simultaneously, and you can contribute to both in the same year. Your combined contributions to all IRAs cannot exceed the annual limit ($7,000 or $8,000 depending on age), but you decide how to split that between them.

What happens to my Roth IRA if I die?

Your beneficiary inherits the account and can withdraw the money. If they are a spouse, they can treat it as their own Roth. Non-spouse beneficiaries must withdraw the entire balance within 10 years, but those withdrawals are still tax-free. This makes Roths valuable for leaving money to heirs.

Can I withdraw my Roth contributions if I need the money?

Yes, without penalty or taxes. You can withdraw the contributions you made at any time. You cannot withdraw the earnings without penalty before age 59½, but the contributions themselves are always accessible. This makes Roths more liquid than traditional IRAs.

Do I have to have earned income to open an IRA?

Yes, for both types. You must have earned income (wages, self-employment income, or similar) in the year you contribute. Passive income like interest or dividends does not count. A spouse with no income can open a spousal IRA if their spouse has earned income.

What if my income changes and I become ineligible for a Roth?

You can keep the Roth IRA you already have and let it grow. Income limits only prevent new contributions; they do not force you to close the account or withdraw money. If your income drops again, you can resume contributions.