The answer depends on your income now and what you expect it to be in retirement

Neither is universally "better"—the choice comes down to whether you want a tax break today or in retirement. A Traditional IRA lets you deduct contributions from your income taxes right now, which lowers what you owe this year. A Roth IRA takes contributions after taxes, but the money grows tax-free and you pay no taxes when you withdraw it later. If you expect to be in a lower tax bracket when you retire, Traditional makes more sense. If you expect to be in the same bracket or higher, Roth usually wins.

There is also a practical difference: Roth accounts have no required withdrawals at any age, while Traditional accounts force you to start taking money out at 73. That matters if you do not need the money and want to leave it to heirs, or if you plan to keep working and do not want mandatory withdrawals.

Key Takeaways

  • Traditional IRA contributions reduce your taxable income this year, but you pay income tax on withdrawals in retirement.
  • Roth IRA contributions are made with after-tax money, but withdrawals in retirement are tax-free.
  • Roth accounts have no required withdrawals at any age, while Traditional accounts require withdrawals starting at age 73.
  • Income limits restrict who can contribute to a Roth IRA, but there are no income limits for Traditional IRA contributions.
  • Your choice should reflect whether you expect your tax bracket to be lower or higher in retirement than it is now.

How the tax break works in each account

With a Traditional IRA, you contribute money and deduct that amount from your taxable income for the year. If you earn $60,000 and contribute $7,000 to a Traditional IRA, you report only $53,000 as taxable income. You pay no tax on that $7,000 now. But when you withdraw money in retirement, every dollar comes out as ordinary income and you owe tax on it at whatever your tax rate is then.

With a Roth IRA, you contribute money that you have already paid taxes on. You get no deduction this year. But when you withdraw that money in retirement—whether it is the original contribution or the growth—you owe nothing. The entire withdrawal is tax-free. This matters most if your investments grow significantly, because all that growth escapes taxation forever.

The trade-off is simple: Traditional saves you taxes now, Roth saves you taxes later. Which one is worth more depends on whether your tax rate will be higher or lower when you retire.

Income limits and who can contribute

Anyone with earned income can contribute to a Traditional IRA, no matter how much they earn. There is no income ceiling. However, if you or your spouse have access to a workplace retirement plan like a 401(k), the deduction phases out at higher incomes. For 2024, if you are covered by a workplace plan, the deduction begins to phase out at $77,000 of income (single filer) or $123,000 (married filing jointly). The phase-out ranges vary by year and filing status.

Roth IRAs have strict income limits. For 2024, you cannot contribute to a Roth if your income exceeds $161,000 (single) or $240,000 (married filing jointly). These limits also change yearly. If your income is above the limit, you cannot use a Roth directly, though some people use a "backdoor Roth" strategy—contributing to a Traditional IRA and then converting it to a Roth—though this has its own rules and tax consequences.

Check the current year's limits on the IRS website, because they adjust annually for inflation.

Withdrawal rules and when you must take money out

With a Traditional IRA, you must start taking withdrawals—called required minimum distributions or RMDs—at age 73. The IRS calculates the minimum amount based on your age and account balance, and you must withdraw at least that much each year. If you do not, you owe a penalty on the amount you should have withdrawn. This applies even if you do not need the money and do not want to withdraw it.

With a Roth IRA, there are no required withdrawals during your lifetime. You can leave the money untouched for as long as you live, which means it keeps growing tax-free. This is useful if you do not need the money, want to let it compound longer, or plan to leave it to heirs. Your heirs will eventually have to withdraw the money, but you do not.

There is one exception: if you inherit a Roth IRA from someone other than your spouse, you must withdraw the entire balance within ten years of their death, though you can spread the withdrawals across those ten years.

Early withdrawal penalties and exceptions

Both account types penalize you for withdrawing before age 59½. With a Traditional IRA, any withdrawal before 59½ is taxed as ordinary income plus a 10% penalty on the amount withdrawn. With a Roth IRA, you can withdraw your contributions (not the earnings) at any time without penalty, because you already paid taxes on those contributions. Withdrawing the earnings before 59½ triggers the 10% penalty and taxes.

Both accounts have exceptions to the early withdrawal penalty. You can withdraw without penalty if you are disabled, have substantial medical expenses, are a first-time homebuyer (up to $10,000 lifetime for Traditional, unlimited for Roth contributions), or face a may have access to hardship. The rules differ between Traditional and Roth, so check the specific exception that applies to your situation.

Roth accounts have another advantage here: since you can withdraw contributions anytime, they function as an emergency fund if you need access to your money. Traditional IRAs do not offer this flexibility.

What happens to your account after you die

When you leave a Traditional IRA to heirs, they inherit the account but must pay income tax on withdrawals. The tax rate depends on their own income bracket. If the account is large, this can push heirs into a higher tax bracket for the year they withdraw.

When you leave a Roth IRA to heirs, they inherit the account tax-free. Withdrawals are not taxed, which is a significant advantage. This is one reason Roth accounts are popular for people who want to leave money to their children—the heirs get the full benefit without a tax bill.

Both types of inherited IRAs now have a ten-year deadline: heirs must withdraw the entire balance within ten years of your death (with some exceptions for spouses and disabled beneficiaries). The rules changed in 2023, so if you have an older inherited IRA, check whether the new rules apply to you.

Which account makes sense for your situation

Choose a Traditional IRA if you want to lower your taxable income this year, expect to be in a lower tax bracket in retirement, or earn too much to contribute to a Roth. This is common for people in their peak earning years who want immediate tax relief.

Choose a Roth IRA if you expect to be in the same or higher tax bracket in retirement, want tax-free growth and withdrawals, do not need required withdrawals, or want to leave tax-assistance programs to heirs. This is common for younger workers who have decades of tax-free growth ahead, or for people who expect their retirement income to be substantial.

You can also split the difference: contribute to both a Traditional and a Roth in the same year, as long as your combined contributions do not exceed the annual limit ($7,000 for 2024 if you are under 50, $8,000 if you are 50 or older). This gives you some tax-deferred growth and some tax-free growth, which can be useful if you are uncertain about your future tax bracket.

Frequently Asked Questions

Can I convert a Traditional IRA to a Roth?

Yes. You can convert all or part of a Traditional IRA to a Roth at any time. You will owe income tax on the amount converted in the year you do it, but the money then grows tax-free in the Roth. This is useful if you expect tax rates to rise, or if you want to lock in a lower tax rate now. Consult a tax professional before converting, because the tax bill can be substantial.

What if I have both a Traditional and a Roth IRA?

You can have both. Your annual contribution limit applies to the combined total across all IRAs you own. If you contribute $4,000 to a Traditional IRA, you can contribute only $3,000 to a Roth that year (assuming the $7,000 limit for 2024). You must track contributions to each account separately for tax purposes.

Do I have to choose one or the other?

No. You can contribute to both a Traditional and a Roth in the same year, as long as your combined contributions stay within the annual limit. This approach lets you benefit from both the immediate tax deduction and future tax-free growth, though it requires managing two accounts.

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

Yes. An IRA and a 401(k) are separate accounts with separate contribution limits. You can contribute to both in the same year. Many people max out their 401(k) first (because employers often match contributions), then open an IRA for additional retirement savings. Check whether your income limits allow you to deduct Traditional IRA contributions if you have a workplace plan.

Which account grows faster?

Neither grows faster than the other—they grow at the same rate based on what you invest in them. The difference is the tax treatment. A Roth grows tax-free, so you keep all the growth. A Traditional grows tax-deferred, meaning you pay taxes on the growth later. Over decades, the tax-free growth of a Roth often results in more money in your pocket, but only if you expect to be in a higher tax bracket in retirement.