How a Roth IRA and Traditional IRA Work Differently

The Core Difference: When You Pay Taxes

A traditional IRA lets you deduct contributions from your income taxes right now, but you pay income tax 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.

This one choice—whether to pay taxes before or after—shapes nearly everything else about how each account works. It affects how much you can contribute, when you can take money out, and how much you'll actually have to spend when you retire.

Key Takeaways

Traditional IRA contributions may reduce your taxable income this year, but withdrawals in retirement are taxed as ordinary income.
Roth IRA contributions use after-tax money, so may have access to withdrawals in retirement are completely tax-free.
Income limits restrict who can contribute to a Roth IRA, but traditional IRAs have no income limits.
Traditional IRAs require you to start taking withdrawals at age 73, while Roth IRAs have no mandatory withdrawal requirement during your lifetime.
The choice between them depends on whether you expect to be in a higher or lower tax bracket in retirement.

How Contributions Work in Each Account

With a traditional IRA, you contribute pre-tax dollars. If you earn $60,000 and put $7,000 into a traditional IRA, your taxable income drops to $53,000 for that year. You file the deduction on your tax return, and the IRS reduces what you owe. The contribution limit for 2024 is $7,000 (or $8,000 if you're 50 or older), and there's no income limit—anyone with earned income can contribute.

With a Roth IRA, you contribute money you've already paid taxes on. That same $7,000 comes from your after-tax paycheck, so your taxable income stays at $60,000. You get no tax deduction this year. However, there are income limits: if your income exceeds a certain threshold, you cannot contribute to a Roth IRA at all. For 2024, the phase-out range for single filers starts at $146,000 and ends at $161,000; for married couples filing jointly, it starts at $230,000 and ends at $240,000. These numbers change each year.

Taxes on Withdrawals and Growth

In a traditional IRA, everything you withdraw is taxed as ordinary income. If your account grows from $100,000 to $250,000 over 30 years, you pay income tax on the full $250,000 when you take it out—not just on the growth, but on your original contributions too (because you deducted them). This means your tax bill in retirement depends on how much you withdraw and what your other income is that year.

In a Roth IRA, may have access to withdrawals are completely tax-free. You already paid tax on the contributions, and the growth—potentially decades of compound interest—is never taxed. If that account grows to $250,000, you withdraw the full amount with zero tax owed. This is the biggest advantage of a Roth if you believe tax rates will be higher in retirement or if you want to leave tax-assistance programs to your heirs.

When You Must Start Taking Money Out

A traditional IRA requires you to take withdrawals starting at age 73 (this changed from age 72 in 2023). 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 don't take the full amount, you face a penalty of 25% on the shortfall (reduced to 10% if you correct it within two years). You cannot avoid this requirement—it applies whether you need the money or not.

A Roth IRA has no required minimum distributions during your lifetime. You can leave the money untouched for as long as you live, letting it grow tax-free. This makes a Roth useful if you don't need the money immediately or if you want to pass a large tax-free balance to your children. Your heirs will eventually have to withdraw the money, but they'll pay no income tax on it.

Early Withdrawal Rules

Both accounts penalize you for taking money out before age 59½, but the rules differ. With a traditional IRA, any withdrawal before 59½ is taxed as ordinary income plus a 10% penalty—unless you may have access to for a narrow exception (disability, medical expenses over 7.5% of income, or a few others). This makes early access expensive.

With a Roth IRA, you can withdraw your contributions (not the growth) at any time, tax-free and penalty-free. If you contributed $50,000 over the years and your account is now worth $80,000, you can pull out the $50,000 whenever you want. The $30,000 in growth is still locked until 59½ unless you meet an exception. This flexibility is another reason people choose a Roth, especially if they're unsure whether they'll need access to their money.

Which One Makes Sense for Your Situation

Choose a traditional IRA if you want to reduce your taxable income this year, expect to be in a lower tax bracket in retirement, or earn too much to contribute to a Roth. It's also useful if you have no other retirement savings and need the tax deduction to make saving feel affordable right now.

Choose a Roth IRA if you expect to be in a higher tax bracket in retirement, want tax-free withdrawals, prefer flexibility to access your contributions early, or want to leave tax-assistance programs to your heirs. It's also the better choice if you're young and have decades for growth to compound tax-free, or if you're uncertain about future tax rates and want to lock in today's rates.

Some people use both: a traditional IRA for the immediate tax deduction and a Roth for tax-free growth. The IRS allows this as long as your total contributions to both accounts don't exceed the annual limit ($7,000 in 2024, or $8,000 at age 50+).

Frequently Asked Questions

Can I convert a traditional IRA to a Roth IRA?

Yes. You can move money from a traditional IRA into a Roth IRA at any time, but you'll owe income tax on the amount converted in that tax year. There's no income limit on conversions, even if you earn too much to contribute directly to a Roth. Many people do "backdoor Roth" conversions to get around the income limits, though the rules are complex and worth discussing with a tax professional.

What happens to my IRA when I die?

Your heirs inherit the account, but the rules depend on the account type and their relationship to you. Spouses can treat the inherited IRA as their own. Non-spouse beneficiaries must withdraw the balance within 10 years (with some exceptions). With a Roth, the withdrawals are tax-free; with a traditional IRA, they're taxed as income.

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

Yes, but your total contributions to both accounts combined cannot exceed the annual limit. If you contribute $4,000 to a traditional IRA, you can only contribute $3,000 to a Roth that same year (assuming the $7,000 limit for 2024). You'll report both accounts on your tax return.

What if my employer offers a 401(k)—do I still need an IRA?

An IRA and a 401(k) serve different purposes. A 401(k) is through your employer and often includes a company match. An IRA is individual and gives you more control over investments. You can have both. Many people max out their 401(k) first to capture the employer match, then contribute to an IRA for additional tax-advantaged savings.

Do I pay taxes on the growth inside the account before I withdraw?

No. In both traditional and Roth IRAs, the money grows tax-free while it sits in the account. You don't pay annual taxes on dividends, interest, or capital gains. The difference is only when you withdraw: traditional withdrawals are taxed, Roth withdrawals are not.

This guide is for general information only and is not medical, financial, legal, or other professional advice. For decisions specific to your situation, consult a qualified professional. See our Editorial Policy.