The choice depends on your tax bracket now versus what you expect in retirement
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 withdrawals in retirement are tax-free. Neither is universally better—the right choice depends on whether you think your tax rate will be higher or lower when you retire than it is today.
If you are in a high tax bracket now and expect to be in a lower one later, traditional makes sense: you get a tax break today when you need it most. If you are in a low bracket now and expect to earn more later, or if you simply want to lock in today's tax rate and never pay taxes on that money again, Roth makes sense. Some people split the difference and use both.
Key Takeaways
- Traditional IRA contributions reduce your taxable income this year; Roth contributions do not, but Roth withdrawals in retirement are never taxed.
- You must have earned income to contribute to either account, and contribution limits are the same for both in any given year.
- Traditional IRAs require you to start taking withdrawals at age 73; Roth IRAs have no withdrawal requirement during your lifetime.
- High earners may be blocked from contributing directly to a Roth IRA, but can use a workaround called the "backdoor Roth" if their income exceeds the limit.
- Your choice can change year to year—you can contribute to a traditional IRA one year and a Roth the next based on your circumstances.
How the tax deduction works with a traditional IRA
When you put money into a traditional IRA, you can deduct that contribution on your federal tax return, which lowers your taxable income for that year. If you earn $60,000 and contribute $7,000 to a traditional IRA, you report only $53,000 as taxable income. That deduction saves you money on taxes today—the exact amount depends on your tax bracket.
The catch is that you owe taxes on that money eventually. When you withdraw from a traditional IRA in retirement, those withdrawals count as income and are taxed at whatever your tax rate is then. If you contributed $7,000 and it grew to $25,000 by age 70, you pay income tax on the full $25,000 when you take it out, not just the $7,000 you put in.
This setup works best if you expect to be in a lower tax bracket in retirement than you are now. Many people are, because they stop working and have less income. But if you have substantial retirement savings, Social Security, or a pension, your retirement income might be higher than your working income, which would make traditional less attractive.
How tax-free growth works with a Roth IRA
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 in the account, it grows tax-free, and you never pay taxes on withdrawals in retirement. If you put in $7,000 and it grows to $25,000, you withdraw the full $25,000 with no tax bill.
This is powerful if you have decades until retirement, because compound growth happens on a larger base. You are also protected if tax rates rise in the future—you locked in today's rate by paying taxes upfront. And unlike a traditional IRA, you can withdraw your contributions (not the earnings) at any time without penalty, which gives you some flexibility in an emergency.
Roth accounts also have no required withdrawals during your lifetime. With a traditional IRA, the IRS forces you to start taking money out at age 73, whether you need it or not. With a Roth, you can leave the money untouched and let it keep growing, or withdraw only what you want. This matters if you do not need the money and want to pass it to heirs.
Income limits and the backdoor Roth strategy
The IRS limits who can contribute directly to a Roth IRA based on income. The threshold varies by year and filing status, but for 2024, single filers begin to phase out at $146,000 and cannot contribute at all above $161,000. Married couples filing jointly phase out starting at $230,000 and cannot contribute above $240,000. These numbers change annually.
If your income exceeds the limit, you cannot simply contribute to a Roth. But there is a legal workaround called a backdoor Roth: you contribute to a traditional IRA (which has no income limit), then immediately convert it to a Roth and pay taxes on the conversion. This works because the conversion itself has no income limit, only the direct contribution does.
The backdoor Roth is straightforward if you have no other traditional IRA balances. If you do have a traditional IRA with pre-tax money in it, the math gets complicated because the IRS taxes conversions based on your total traditional IRA balance, not just the amount you are converting. Talk to a tax preparer before attempting this if you have existing traditional IRA funds.
Contribution limits and earned income requirements
For 2024, you can contribute up to $7,000 to a traditional or Roth IRA if you are under age 50, or $8,000 if you are 50 or older. These limits apply to your combined contributions across all IRAs—if you put $4,000 in a traditional IRA, you can only put $3,000 in a Roth that same year. The limits change annually, usually by $500 increments.
You must have earned income to contribute to either account. Earned income means wages, salary, or self-employment income—not investment returns, Social Security, or pension payments. If you are married and one spouse does not work, the working spouse can fund a spousal IRA in the non-working spouse's name, as long as the household earned income covers both contributions.
You can contribute for the current year until the tax filing deadline the following year, usually April 15. If you miss that deadline, you cannot go back and contribute for that year. But you can always start contributing for the current year at any time.
Withdrawal rules and penalties
With a traditional IRA, any withdrawal before age 59½ is subject to a 10% penalty plus income tax on the amount withdrawn. There are exceptions—you can withdraw penalty-free for a first home purchase (up to $10,000 lifetime), education expenses, disability, or medical bills over 7.5% of your income. But the general rule is: withdraw early, pay the penalty.
With a Roth IRA, you can withdraw your contributions at any time, penalty-free, because you already paid taxes on them. You can only withdraw earnings penalty-free after age 59½ and if the account has been open for at least five years. If you withdraw earnings before meeting both conditions, you pay a 10% penalty plus income tax on the earnings portion.
At age 73, traditional IRA owners must begin taking required minimum distributions (RMDs)—the IRS calculates how much you must withdraw each year based on your age and account balance. Roth IRAs have no RMD requirement during the owner's lifetime, which is one reason they are popular for people who want to leave money to heirs or do not need the income.
Comparing the two side by side
| Traditional IRA | Roth IRA | |
|---|---|---|
| Tax on contributions | Deductible this year | No deduction; paid with after-tax money |
| Tax on withdrawals | Fully taxed as income | Tax-free if account is 5+ years old and you are 59½+ |
| Income limits | None for contributions; deduction phases out if you have a workplace plan | Direct contribution blocked above $161,000 (single) or $240,000 (married) |
| Required withdrawals | Must start at age 73 | None during your lifetime |
| Early withdrawal of contributions | Taxed and penalized before 59½ | Penalty-free anytime |
| Best for | High earners now, lower income in retirement | Lower earners now, higher income in retirement, or long time horizon |
Deciding based on your workplace retirement plan
If you have a 401(k), 403(b), or other workplace plan, that affects your traditional IRA deduction. The IRS phases out your deduction if you earn above a certain threshold and are covered by a workplace plan. For 2024, single filers phase out between $77,000 and $87,000; married couples filing jointly phase out between $123,000 and $143,000. These limits change yearly.
If you are above these limits and have a workplace plan, you cannot deduct a traditional IRA contribution, which removes most of the advantage of choosing traditional. In that case, a Roth IRA (if your income is below the Roth limit) or a backdoor Roth (if you are above it) usually makes more sense. You get tax-free growth without the deduction phase-out problem.
If you do not have a workplace plan, you can always deduct traditional IRA contributions, regardless of income. This is one reason self-employed people and gig workers sometimes prefer traditional IRAs—they get the full deduction without phase-out limits.
Frequently Asked Questions
Can I have both a traditional and Roth IRA at the same time?
Yes. Your combined contributions across all IRAs cannot exceed the annual limit, but you can split that limit between accounts however you want. Some people use both—a traditional IRA for the immediate tax deduction and a Roth for tax-free growth. This is called "splitting contributions" and is perfectly legal.
What happens to my Roth IRA if I die?
Your heirs inherit the account and can withdraw the money, though they will owe income tax on any earnings (not your contributions). Roth accounts are popular for leaving to heirs because the tax-free growth benefit carries forward. A traditional IRA goes to heirs too, but they owe income tax on all withdrawals since the money was never taxed.
Can I convert a traditional IRA to a Roth later?
Yes, at any time. You pay income tax on the amount you convert in that year, but the money then grows tax-free in the Roth. Many people do this in years when their income is lower or when the market has dropped (so the conversion amount is smaller). There is no income limit on conversions, only on direct Roth contributions.
Which should I choose if I am not sure what my retirement income will be?
If you are young with decades until retirement, Roth usually wins because you lock in today's tax rate and get decades of tax-free growth. If you are close to retirement and your income is stable, traditional often makes more sense because you get an immediate tax break. If you are truly uncertain, splitting contributions between both accounts hedges your bet.
Do I have to use the same type of IRA every year?
No. You can contribute to a traditional IRA one year and a Roth the next, or split your contribution between both in the same year. Your choice can change based on your income, tax bracket, or life circumstances. This flexibility is one reason IRAs are useful—you are not locked into one strategy.