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 this year. You pay taxes later, when you withdraw the money in retirement. A Roth IRA works the opposite way: you put in money that has already been taxed, and then you withdraw it tax-free in retirement.

That single difference—when the tax bill arrives—shapes almost everything else about how each account works. It affects how much you can put in, when you have to take money out, who can open one, and what happens to your money if you need it before retirement.

Key Takeaways

  • Traditional IRAs reduce your taxes now by letting you deduct contributions, but you pay income tax on withdrawals in retirement.
  • Roth IRAs use after-tax money going in, but all withdrawals and growth come out tax-free after age 59½.
  • Traditional IRAs require you to start taking withdrawals at age 73, while Roth IRAs have no withdrawal requirement during your lifetime.
  • Roth IRAs let you withdraw your contributions (not earnings) at any time without penalty, while traditional IRAs charge a 10% penalty plus taxes for early withdrawal.
  • Income limits restrict who can open a Roth IRA, but there are no income limits for traditional IRAs.

How contributions work and what they cost you in taxes

With a traditional IRA, the money you put in 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 owe less in federal income tax right now. The IRS lets you deduct the full amount you contribute, up to the annual limit (which changes each year—check the IRS website for the current year's number).

With a Roth IRA, you get no tax deduction. You contribute money you have already paid taxes on. If you earn $60,000 and contribute $7,000 to a Roth, you still owe taxes on the full $60,000. The trade-off is that you never pay taxes on that $7,000 again, or on any growth it earns.

There is one exception: if you have a workplace retirement plan (like a 401(k)) and your income is above a certain threshold, the IRS limits or eliminates the tax deduction for a traditional IRA contribution. Income limits for Roth IRAs are stricter—if you earn too much, you cannot open one at all. These thresholds change yearly.

Taxes when you withdraw money

With a traditional IRA, every dollar you withdraw is taxed as ordinary income. If you withdraw $10,000, that $10,000 gets added to your other income for the year, and you pay income tax on it at whatever rate applies to your total income. This includes both the money you originally put in and all the growth it earned over the years.

With a Roth IRA, withdrawals are tax-free—but only if you follow the rules. You must be at least 59½ years old, and the account must have been open for at least five years. If both conditions are met, you withdraw as much as you want and owe no federal income tax. If you withdraw before 59½ or before the five-year mark, the earnings portion gets taxed and may face a 10% penalty, though your original contributions can always come out penalty-free.

This difference matters most over decades. A Roth account that grows from $50,000 to $200,000 means you keep all $200,000. A traditional account that grows the same way means you owe income tax on the full $200,000 when you start withdrawals.

Required withdrawals in retirement

Traditional IRAs force you to start taking money out at age 73. The IRS calls this a required minimum distribution (RMD). Each year, you must withdraw at least a certain amount based on your age and account balance. If you do not take it, you face a penalty of 25% on the amount you should have withdrawn (or 10% if you correct it within two years). You cannot simply leave the money alone to keep growing.

Roth IRAs have no required minimum distribution during your lifetime. You can leave the money untouched for as long as you live, and it keeps growing tax-free. This makes a Roth useful if you do not need the money in retirement or want to pass a large tax-free account to your heirs. Your beneficiaries will eventually have to withdraw the money, but the withdrawals remain tax-free to them.

Withdrawing money before retirement

Traditional IRAs penalize early withdrawal heavily. If you take money out before age 59½, you pay a 10% penalty on top of ordinary income tax. A $10,000 withdrawal before 59½ might cost you $1,000 in penalty plus $2,000 to $3,000 in taxes, depending on your income bracket. There are narrow exceptions—withdrawals for a first home purchase (up to $10,000 lifetime), medical expenses, or disability—but most early withdrawals hurt.

Roth IRAs are more flexible. You can withdraw your contributions (the money you put in) at any time, tax-free and penalty-free. If you contributed $50,000 over ten years and the account grew to $70,000, you can withdraw the $50,000 whenever you want. You cannot touch the $20,000 in earnings without penalty until 59½, but the contributions are yours to access. This makes a Roth useful as an emergency fund that also grows for retirement.

Who can open each type

Anyone with earned income can open a traditional IRA, regardless of how much they earn. There are no income limits. If you are 70 years old and earn $200,000, you can still contribute. The only restriction is that you cannot contribute more than you earned that year.

Roth IRAs have income limits that change yearly. If your income exceeds a certain threshold (which depends on your filing status), you cannot open a Roth or your contribution is reduced. For 2024, the limit phases out starting around $146,000 for single filers and $230,000 for married couples filing jointly, but these numbers change each year. If your income is too high for a Roth, you can still open a traditional IRA, or you might use a "backdoor Roth" strategy (a workaround that involves opening a traditional IRA and converting it, though this has its own rules and tax implications).

Which one makes sense for your situation

Choose a traditional IRA if you want to lower your taxes this year, expect to be in a lower tax bracket in retirement, or earn too much to open a Roth. It is straightforward: you get an immediate tax break, and you deal with taxes later.

Choose a Roth IRA if you are early in your career (likely in a lower tax bracket now), expect to earn more and be in a higher bracket later, want tax-free growth over decades, or value the flexibility of accessing contributions without penalty. A Roth also works well if you want to leave money to heirs or do not need withdrawals in retirement.

Many people open both. You can contribute to a traditional IRA and a Roth IRA in the same year, as long as your combined contributions do not exceed the annual limit. Some people max out a Roth while they are young, then switch to a traditional IRA later when their income rises and the tax deduction becomes more valuable.

Frequently Asked Questions

Can I convert a traditional IRA to a Roth?

Yes. You can move money from a traditional IRA to a Roth IRA at any time. The amount you convert is treated as taxable income for that year, so you owe taxes on it. This strategy makes sense if you expect tax rates to rise, or if you have a year with unusually low income. Many people do small conversions over several years to spread out the tax bill.

What happens to my IRA if I die?

Your beneficiary inherits the account. With a traditional IRA, they owe income tax on withdrawals. With a Roth IRA, withdrawals are still tax-free to them. This is one reason people prefer Roth accounts for leaving money to heirs. The rules for how long beneficiaries can stretch out withdrawals changed in 2023, so check current rules if this matters to your plan.

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

Yes, but your total contributions across both accounts cannot exceed the annual limit. If the limit is $7,000 and you contribute $4,000 to a traditional IRA, you can only contribute $3,000 to a Roth that year. Many people do this to diversify their tax situation.

What if I need money from my Roth before retirement?

You can withdraw your contributions anytime without penalty or tax. If you need to tap the earnings before 59½, you face a 10% penalty and income tax on that portion, unless you meet a narrow exception like disability or a first-home purchase. This is why a Roth works as both a retirement account and an emergency backup.

Do I pay state income tax on IRA withdrawals?

Yes, in most states. Traditional IRA withdrawals are subject to state income tax in addition to federal tax. Roth withdrawals remain tax-free at both levels. A few states do not tax retirement income, so check your state's rules if you are planning to move in retirement.