Roth vs. Traditional IRA: What's the Difference?
Both accounts help you save for retirement with tax advantages — but they work very differently. Here's which one makes sense for you.
3 min read · Updated 2026-04-01
For informational purposes only. This content is not financial or legal advice. Consult a licensed professional for advice specific to your situation.
An IRA (Individual Retirement Account) is one of the best tools available for retirement savings outside of your employer's 401(k). Choosing between a Roth and Traditional comes down to one key question: when do you want to pay taxes?
The Core Difference
Traditional IRA:
- Contributions may be tax-deductible now
- Money grows tax-deferred
- You pay income tax when you withdraw in retirement
Roth IRA:
- Contributions are made with after-tax money (no deduction now)
- Money grows tax-free
- Qualified withdrawals in retirement are completely tax-free
The 2024 Numbers
- Contribution limit: $7,000/year (same for both types)
- If you're 50+: $8,000/year (catch-up contribution)
- This limit is shared — you can't put $7,000 in each; it's $7,000 total across all IRAs
Roth IRA income limits (2024):
- Single filers: phase out $146,000–$161,000
- Married filing jointly: phase out $230,000–$240,000
- Above these limits: you can't contribute directly to a Roth (look up "backdoor Roth" if this applies to you)
Traditional IRAs have no income limit for contributions, but deductibility phases out if you have a workplace retirement plan.
Which Is Better for You?
Choose Roth if:
- You're early in your career with lower income now (and expect to earn more later)
- You're in a low tax bracket (22% or below)
- You want flexibility — Roth contributions (not earnings) can be withdrawn anytime penalty-free
- You believe tax rates will be higher in the future
- You want no required minimum distributions (Roth IRAs don't have RMDs during the owner's lifetime)
Choose Traditional if:
- You're in a high tax bracket now and expect to be in a lower one in retirement
- You want a tax deduction today to reduce your current bill
- You earn too much to contribute to a Roth directly
When you genuinely can't decide: Many people do both — contribute to a Roth IRA and a traditional 401(k) at work, getting current tax benefits on the 401(k) and tax-free growth in the Roth.
The Power of Starting Early
A 25-year-old who contributes $7,000/year to a Roth IRA earning 8% annually will have approximately $2.5 million at 65 — all of it tax-free.
The same contributions starting at 35 produce roughly $1.1 million.
The lesson: the best IRA is the one you open and contribute to consistently, starting as early as possible.
Where to Open One
Any major brokerage offers IRAs with no account fees:
- Fidelity — no minimum, excellent index funds
- Vanguard — no minimum, pioneer of low-cost investing
- Schwab — no minimum, good customer service
- M1 Finance — good for set-it-and-forget-it automatic investing
Once the account is open, invest in a simple index fund or target-date fund — you don't need to pick individual stocks.