Roth IRA vs. Traditional IRA: Which Is Right for Me?

Saving for retirement comes with a myriad of choices. One of the biggest is deciding between a Roth IRA and a Traditional IRA. These are two of the most popular options for accruing retirement savings, and the main difference between them comes down to taxes. A Roth IRA lets you pay taxes now and withdraw money tax-free later. A Traditional IRA, on the other hand, gives you a tax break now but taxes your withdrawals during retirement. 

Below, we’ll break down the key differences between the two options. You’ll learn how income, tax brackets, and retirement goals each play a role in selecting the account that best suits you. 

The Fundamental Differences

When considering a retirement account, it’s a good idea to consider a traditional IRA vs. Roth IRA so you can pick the one that’s best for your needs. A Roth IRA and a Traditional IRA both give you a way to save for retirement, but they work differently when it comes to your taxes. The most significant difference is when you pay taxes on your money. Here’s a simple comparison of Roth vs. traditional IRAs.

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Both accounts let your investments grow over time, but how contributions, growth, and withdrawals are taxed ultimately distinguishes them. 

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2025 Contribution Limits and Eligibility

Both Roth IRAs and Traditional IRAs follow the same yearly contribution limits. However, your income and workplace retirement plan impact how much you can contribute or deduct. Let’s take a look at the rules for each account in 2025. 

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Roth IRA Income Limits for 2025

For 2025, you can contribute up to $7,000 to a Roth IRA, or $8,000 if you’re 50 or older. There are income limits, though, that might lower or block how much you can put in. 

• Single filers can contribute the full amount if their modified adjusted gross income (MAGI) is below $150,000.
• If your MAGI is between $150,000 and $165,000, you can contribute a reduced amount.
• If your MAGI is over $165,000, you can’t contribute to a Roth IRA.
• Married couples filing jointly have a full contribution limit with MAGI under $230,000.
• Contributions phase out between $230,000 and $240,000.
• At over $240,000, no contributions are allowed.

If your income is too high, you might want to consider a backdoor Roth IRA strategy, which we’ll discuss later. 

Traditional IRA Eligibility Rules

There are no income limits for putting money into a Traditional IRA, but there are limits on whether you can deduct your contributions. 

If you or your spouse doesn’t have a workplace retirement plan, you can deduct the full amount from your taxes. 

If you do have a workplace plan, your MAGI determines if you get a full, partial, or no deduction:

• For single filers, deductions phase out between $77,000 and $87,000.
• For married couples filing jointly, deductions phase out between $123,000 and $143,000 if the person contributing has a workplace plan.
• If only your spouse has a workplace plan, the phase-out range is $230,000 to $240,000.

Even if your contributions aren’t deductible, you can still contribute to a Traditional IRA and grow your investments tax-deferred. This is also useful for specific tax strategies. 

Tax Filing Considerations

Your tax filing status affects how much you can contribute or deduct with an IRA. 

If you are single or married filing jointly, you typically have higher income limits to qualify for Roth IRA contributions and Traditional IRA deductions. 

If you are married filing separately, the income limits are much lower for Roth IRA contributions. In most cases, you’ll only get a partial or no contribution if your income is above $10,000. 

For a Traditional IRA, your filing status matters if you or your spouse has a workplace retirement plan. It decides if you’ll receive a full or partial tax deduction on your contributions. 

Filing status is easy to overlook, but it significantly affects how much you benefit from your IRA.

Key Decision Factors

Choosing between a Roth IRA and a Traditional IRA usually depends on your current situation and future goals. Two of the biggest things to consider are your tax bracket and where you are in your career. 

Current vs. Future Tax Brackets

Think about your tax bracket now and what it may look like in retirement. 

A Roth IRA is typically a good option if you’re in a lower tax bracket now and expect to be in a higher bracket later. You pay taxes on your contributions now and get to take out your money tax-free later. This makes sense for younger workers or anyone who expects their income to grow over time. 

A Traditional IRA often makes sense if you’re in a higher tax bracket now and expect to be in a lower bracket when you retire. You can lower your taxes today and pay less tax in retirement. This works well for people in their prime earning years. 

Age and Career Stage Considerations

Your age and career stage also influence your choice.

• Young professionals often lean toward Roth IRAs. You get tax-free growth for many years, and you can take out contributions anytime if needed.
• Mid-career earners may consider a mix of both accounts. This way, they get some tax relief now and some tax-free income later. 
• Near-retirees generally prefer Traditional IRAs if they want instant tax savings during their highest earning years.

Some people split their contributions between Roth and Traditional IRAs (if eligible). This gives them more options in the future. 

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Required Minimum Distributions and Withdrawal Rules

Another big difference between Roth and Traditional IRAs is when you have to start taking money out. 

With a Traditional IRA, you must start minimum withdrawals at age 73. These are called required minimum distributions (RMDs). You have to take them even if you don’t need the money. Plus, you’ll pay taxes on those withdrawals.

A Roth IRA doesn’t have RMDs during your lifetime if you’re the original owner. That means you can leave the money in the account for as long as you wish, letting it grow tax-free.

It’s also worth noting that early withdrawals before age 59½ are subject to penalties and taxes on Traditional IRAs. In contrast, Roth IRAs offer more flexibility, which we’ll cover in the subsequent section. 

Early Withdrawal Considerations

Sometimes, you might need to withdraw money before retirement, and the rules for early withdrawals are different for each account. 

With a Roth IRA, you can take out your contributions at any time without taxes or penalties. This gives you more flexibility if something unexpected comes up. However, to withdraw earnings tax-free, you typically need to be 59½  or older and have had the account for at least five years. This is called the five-year rule. 

For a Traditional IRA, withdrawing the money before age 59½ generally means you’ll pay income tax and a 10% penalty. There are a few exceptions, like using the money for a first home purchase or qualified education costs. Certain medical expenses can also be excused.

It’s a good idea to be cognizant of these differences if you ever need access to your retirement funds early.

Special Strategies for High Earners

If your income is too high for direct Roth IRA contributions, there are still ways to use a Roth through a few special strategies. 

One common option is the Backdoor Roth IRA, which involves making nondeductible contributions to a Traditional IRA, then converting it to a Roth IRA. This lets high earners enjoy the benefits of tax-free growth, even if they don’t qualify for regular Roth contributions. Remember the pro-rata rule, which affects how much of the conversion is taxed.

Some people with a workplace retirement plan might also have access to a Mega Backdoor Roth, which involves making after-tax 401(k) contributions and rolling that money into a Roth IRA or Roth 401(k). This allows for much larger contributions than regular IRA limits. 

These strategies are useful for maximizing retirement savings, but the tax rules can be tricky. Many choose to talk to a financial advisor before setting up these options. 

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Employer-Sponsored Plan Coordination

Your IRA can work alongside your workplace retirement plan, such as a 401(k), to give you more ways to save for retirement. 

Even if you contribute to a 401(k), you can still put money into a Traditional IRA or a Roth IRA. However, having a workplace plan affects whether you can deduct your Traditional IRA contributions. Your eligibility depends on your income.

Combining a Roth IRA with a 401(k) is also common. This approach gives you a mix of tax-free and tax-deferred income in retirement. Some people like having both options so they can decide later how to take withdrawals based on their tax situation.

Overall, IRAs are a valuable addition to workplace plans and give you more flexibility when saving for the future. 

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Making Your Decision

Both Roth and Traditional IRAs offer good ways to accrue retirement savings, but the better fit depends on your tax situation and income. Your future plans can also influence your decision. Here are some key points to keep in mind. 

Key Takeaways

• Roth IRAs give you tax-free withdrawals in retirement but have income limits.
• Traditional IRAs offer tax deductions now, but you’ll pay taxes on withdrawals later.
• Your current and future tax bracket can guide your decision.
• Roth IRAs have no required minimum distributions (RMDs), while Traditional IRAs do.
• Early withdrawals are usually more flexible with Roth IRAs than Traditional IRAs.

Action Items

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Find an advisor to start strategizing for your retirement today!

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FAQs

Roth IRA:

Is it better to have a 401(k) or a Roth IRA?

It depends on your situation. A 401(k) often comes with employer matches and higher contribution limits. A Roth IRA offers tax-free growth and withdrawals in retirement. Many people use both.

Does money grow faster in a 401(k) or Roth IRA?

Growth depends on investments, not the account type. However, Roth IRA growth is tax-free, which can result in more money after taxes.

Can you withdraw from Roth IRA?

Yes. You can withdraw contributions at any time. Earnings can be withdrawn tax-free after age 59½ if the account is at least 5 years old.

How much should I contribute to my Roth IRA?

For 2025, you can contribute up to $7,000 if you're under 50, or $8,000 if you're 50 or older. Aim to max out if you can, but any consistent amount helps. Income limits apply for eligibility.

Is Roth IRA tax-free?

Yes—for qualified withdrawals. Contributions are always tax-free. Earnings are tax-free if you're 59½ or older and the account is at least 5 years old.

Can I open a Roth IRA if I have a 401(k) at work?

Yes, as long as your income is within Roth IRA limits. The 401(k) doesn’t affect your eligibility.

What is the income limit for a Roth 401(k)?

There isn’t one. Anyone can contribute, regardless of income, if their employer offers a Roth 401(k).

How does a Roth IRA work?

You contribute after-tax money, up to a limit set by the IRS. It grows tax-free, and you can withdraw it tax-free in retirement if you're 59½ and the account is at least 5 years old.

What age can you withdraw from IRA?

You can start taking penalty-free withdrawals at 59½, assuming the account is at least 5 years old. Taxes may still apply, depending on the type of IRA and the withdrawal.

What are the disadvantages of a Roth IRA?

There are a few disadvantages of a Roth IRA. You don’t get an upfront tax deduction, income limits may restrict who can contribute, the annual contribution limit is lower than a 401(k), and contributions aren’t automatic unless you set them up.

How much does it cost to open a Roth IRA?

Most providers let you open a Roth IRA for free. Some may require a minimum deposit or charge low account or fund fees.

Traditional IRA: 

How does a traditional IRA work?

You contribute pre-tax or after-tax money (depending on your income and coverage by a workplace plan). The money grows tax-deferred, and withdrawals in retirement are taxed as income.

At what age is IRA withdrawal tax-free?

For a Roth IRA, withdrawals are tax-free at 59½ if the account is at least 5 years old. For a Traditional IRA, withdrawals are taxed as income at any age—there’s no age when they become tax-free.

Can you withdraw from a traditional IRA at any time?

Yes, but withdrawals before age 59½ typically incur a 10% penalty and income tax, unless an exception applies.

What is the maximum income for a traditional IRA?

There’s no income limit to contribute. However, income limits affect whether your contribution is tax-deductible if you or your spouse is covered by a workplace retirement plan.

What are the disadvantages of a traditional IRA?

Withdrawals are taxed as income, early withdrawals may face penalties, and required minimum distributions (RMDs) start at age 73. Contributions may not be tax-deductible if your income is too high.

How much tax will I pay on a traditional IRA?

Withdrawals are taxed as ordinary income based on your tax bracket at the time you take the money out.

Do I have to report my IRA on my tax return?

Yes. Traditional IRA contributions are reported if you’re deducting them. Roth IRA contributions usually aren’t reported unless you qualify for the Saver’s Credit. All withdrawals, rollovers, and conversions must be reported using Form 1099-R and possibly Form 8606, even if they aren’t taxable.

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