The choice depends on your tax bracket now versus later
A traditional IRA lets you deduct contributions from your taxes this year, lowering what you owe. You pay taxes later when you withdraw the money in retirement. A Roth IRA takes money after taxes go out, but then you withdraw it tax-free in retirement. Neither is objectively better—the right one depends on whether you expect to be in a higher or lower tax bracket when you retire.
If you are in a high tax bracket now and expect to be in a lower one later, a traditional IRA saves you more money today. If you are in a low bracket now and expect to be in a higher one later, a Roth IRA saves you more money in retirement. The catch is that nobody knows future tax rates, so you are making an educated guess.
Key Takeaways
- Traditional IRAs give you a tax deduction now but require you to pay taxes on withdrawals later; Roth IRAs take after-tax money now but let you withdraw tax-free later.
- Your current income and expected retirement income are the main factors—if you think you will earn less in retirement, traditional usually wins; if you think you will earn more or tax rates will rise, Roth usually wins.
- Roth IRAs have no required withdrawals at any age, while traditional IRAs force you to start withdrawing at age 73, which can push you into a higher tax bracket.
- Income limits restrict who can contribute directly to a Roth IRA, but there is no income limit for traditional IRAs, though high earners lose the tax deduction.
- You can hold both types at the same time, and you can convert a traditional IRA to a Roth (though you pay taxes on the conversion).
How the tax deduction works with a traditional IRA
When you contribute to a traditional IRA, you can deduct that amount from your income on your tax return—but only if you meet certain conditions. If you have a workplace retirement plan like a 401(k) and your income is above a threshold, the deduction phases out or disappears entirely. The income thresholds change each year and depend on your filing status.
If you do not have a workplace plan, or your income is below the threshold, you get the full deduction no matter how much you earn. This means a $7,000 contribution could reduce your taxable income by $7,000, which lowers your tax bill for that year. The money grows tax-free inside the account, but when you withdraw it in retirement, every dollar is taxed as ordinary income.
How the Roth IRA avoids taxes on withdrawals
With a Roth IRA, you contribute money that has already been taxed. You do not get a deduction this year. But once the money is inside the account, it grows tax-free, and when you withdraw it in retirement, you owe no taxes on any of it—not on the original contribution and not on the earnings.
This matters most if your investments grow significantly. If you put in $7,000 and it becomes $50,000 over 30 years, that $43,000 in growth is completely tax-free in a Roth. In a traditional IRA, you would owe taxes on the entire $50,000 when you withdraw it. The longer your money sits in a Roth, the bigger the advantage.
Income limits and who can contribute
Roth IRAs have income limits that phase out your ability to contribute. For 2024, if you are single and earn over a certain amount, you cannot contribute the full $7,000. If you earn above a higher threshold, you cannot contribute at all. These limits change yearly and are higher if you are married filing jointly.
Traditional IRAs have no income limit—anyone with earned income can contribute. However, if you have a workplace retirement plan and earn above a threshold, you lose the tax deduction even though you can still put money in. High earners often use traditional IRAs as a holding place for after-tax money, then convert it to a Roth later (a strategy called a "backdoor Roth").
Required withdrawals and flexibility in retirement
Traditional IRAs force you to start withdrawing money at age 73. These are called required minimum distributions, or RMDs. The IRS calculates how much you must take based on your age and account balance. If you do not take it, you face a penalty. This matters because a large forced withdrawal can push you into a higher tax bracket or affect other benefits you receive.
Roth IRAs have no required withdrawals during your lifetime. You can leave the money untouched as long as you want, which gives you more control over when and how much you withdraw. This flexibility is especially valuable if you do not need the money right away or if you want to leave the account to heirs.
Conversions and mixing both account types
You can convert money from a traditional IRA to a Roth IRA at any time. When you do, you pay taxes on the amount you convert in that year. This sounds counterintuitive, but it can make sense if you expect tax rates to be higher later, or if you are in a low-income year and want to lock in a lower tax rate on the conversion.
Many people hold both types of accounts. You might contribute to a traditional IRA for the immediate tax deduction, then convert part of it to a Roth in a year when your income is lower. Or you might contribute to a Roth while also having a traditional IRA from an old job. There is no rule against having both, and some people use this strategy to spread their tax burden across multiple years.
Comparing the two side by side
| Traditional IRA | Roth IRA | |
|---|---|---|
| Tax deduction now | Yes (if income is below threshold) | No |
| Taxes on withdrawals | Yes, on everything | No, on anything |
| Required withdrawals at 73 | Yes | No |
| Income limit to contribute | No limit | Yes, phases out at higher income |
| Best if | You expect lower income in retirement | You expect higher income in retirement |
Frequently Asked Questions
Can I switch from a traditional IRA to a Roth if I change my mind?
Yes. You can convert a traditional IRA to a Roth at any time, but you will owe taxes on the amount you convert in that year. Many people do this in years when their income is unusually low, so they pay taxes at a lower rate. There is no limit on how many conversions you can do.
What happens if I have both a traditional and Roth IRA?
You can have both, and the contribution limits apply to your total across all IRAs. If you contribute $4,000 to a traditional IRA, you can only contribute $3,000 to a Roth that year (assuming the annual limit is $7,000). Required minimum distributions apply only to the traditional IRA, not the Roth.
Which one should I pick if I am young and just starting out?
If you are in a low tax bracket now, a Roth usually makes more sense because you lock in a low tax rate on your contributions and all future growth. You also get decades for the money to grow tax-free. If you are in a high bracket now, a traditional IRA gives you an immediate tax break that you can use right away.
Do I have to choose one or the other?
No. You can contribute to both in the same year, as long as your total contributions do not exceed the annual limit. Some people use a traditional IRA for the tax deduction and a Roth for tax-free growth, splitting their strategy between both account types.
What if my income is too high for a Roth IRA?
If you earn above the Roth income limit, you can still use a backdoor Roth strategy: contribute to a traditional IRA (which has no income limit), then convert it to a Roth and pay taxes on the conversion. This works best if you have no other traditional IRAs, because the IRS treats all your traditional IRAs as one account for tax purposes.