The difference comes down to when you pay tax. A traditional IRA usually gives you a deduction now and taxes withdrawals later. A Roth IRA gives no deduction now, but qualified withdrawals come out tax-free. Which one wins depends mostly on whether your tax rate will be higher now or in retirement, and the answer is never certain, which is why this article looks at the choice as part of a whole retirement plan rather than a single yes-or-no pick.
This is a US article. Contribution limits, income phase-outs, catch-up amounts and the age at which required distributions start all change over time, so this page does not quote them. The IRS publishes the current figures in Publication 590-A (contributions) and Publication 590-B (distributions). This page assumes you know the basics and focuses on how the two types fit together over a career and into retirement.
How each account works
Traditional IRA. You contribute, and if you qualify you deduct the contribution from taxable income. The money grows tax-deferred, and withdrawals are taxed as ordinary income. The law requires you to start taking minimum distributions at an age Congress has moved more than once, so check the IRS for the current starting age.
Roth IRA. You contribute money you have already paid tax on, with no deduction. Growth is tax-free, and qualified withdrawals are tax-free. The IRS describes a qualified distribution as one made after a five-year period (counted from the first tax year you contributed to any Roth IRA) and on or after age 59 and a half, or on another qualifying event such as disability. The original owner has no required distributions.
The annual contribution limit is shared across all your IRAs, and the IRS sets a separate catch-up amount for older savers. Whether you may contribute directly to a Roth, or deduct a traditional contribution, depends on your income, filing status and whether a workplace plan covers you.
| Feature | Traditional IRA | Roth IRA |
|---|---|---|
| Tax break on contribution | Possible deduction | None |
| Growth | Tax-deferred | Tax-free |
| Withdrawals in retirement | Ordinary income | Tax-free if qualified |
| Required distributions | Yes, starting at an age set by law | Not for the original owner |
| Income rules | Deduction may phase out if you have a workplace plan | Direct contributions phase out at higher incomes |
| Contributions before 59 and a half | Taxed, and generally a 10 percent additional tax | Contributions (not earnings) can come out tax-free |
The tax-rate bet, in numbers
If your tax rate in retirement will be higher than today, Roth tends to win. If lower, traditional tends to win. If the same, they are roughly equal in after-tax value.
Here is a simplified example. Assume $6,000 of pre-tax income, 7 percent growth for 25 years, and no other factors. Untaxed, $6,000 grows to about $32,600.
- Roth, 22 percent rate now. You pay $1,320 in tax and invest $4,680, which grows to about $25,400, tax-free.
- Traditional, 22 percent now and 22 percent later. The full $6,000 grows to $32,600, and after 22 percent tax you keep about $25,400.
- Traditional, 12 percent in retirement. You keep about $28,700, more than the Roth.
- Traditional, 32 percent in retirement. You keep about $22,200, less than the Roth.
When the rates match, the account label makes no difference. The gap between the two rates is what matters. These figures assume a steady return and a fixed rate, which real life does not provide.
Why many people hold both
You are guessing tax rates decades ahead. Your retirement income, your filing status and tax law can all change. Because of that, a common planning idea is tax diversification: build some money in each bucket.
The payoff comes in retirement. With both types you can choose which account to draw from in a given year. In a year when you want to stay in a lower bracket, you can take what you need from traditional accounts up to that bracket and fill the rest of your spending from Roth money without adding taxable income. Taxable income also affects how much of your Social Security is taxed, as the article on when to claim Social Security notes, and Roth withdrawals do not count toward it the way traditional withdrawals do.
This is one approach, not a rule. Someone with a large pension and Social Security may already be in a stable bracket in retirement, which changes the math.
When Roth often fits
- You are early in your career with a lower income that you expect to rise. The article on using a Roth IRA when your income is rising works through that case.
- You are in an unusually low bracket this year, for example during school, a gap between jobs or a career change.
- You want tax-free money that avoids required distributions or passes to heirs.
- You value being able to take out your own contributions if you truly must.
When traditional often fits
- You are in a high bracket now and expect a lower one in retirement.
- You need the deduction to reduce your tax bill this year.
- Your income is above the direct Roth contribution range and you do not want to use workarounds.
If a workplace plan covers you or your spouse and your income is above the IRS thresholds, the deduction for a traditional IRA can shrink or vanish. Without a deduction, the main appeal of the traditional route is gone, though non-deductible contributions can feed a conversion strategy that has its own tax rules.
Traps to know about
- The five-year clock. Roth earnings taken out before the account meets the five-year test and the age test can be taxed and may face the 10 percent additional tax. Each conversion also has its own separate five-year period for the 10 percent tax, as the IRS explains in Publication 590-B.
- Early withdrawals. Traditional IRA withdrawals before 59 and a half are generally taxed plus a 10 percent additional tax, with listed exceptions.
- Conversions. Moving traditional money to Roth creates a tax bill for that year, and existing pre-tax IRA balances affect how it is taxed. This is a place where a tax professional earns their fee.
- Skipping the match. An IRA has no employer match. If your workplace plan offers one, capturing it usually comes first, as covered in contributing enough to get the full 401(k) match.
- Beneficiaries. Rules for inherited accounts have changed in recent years, and your beneficiary form usually overrides a will. Keep it current.
How to decide in four steps
- Estimate your marginal tax rate now.
- Sketch your likely retirement income (Social Security, any pension, withdrawals) and the bracket it implies.
- If you cannot tell, split contributions between both types.
- Revisit after raises, job changes and life events.
For most people the gap between a good and a mediocre choice here is smaller than the gap between saving steadily and not saving. Inside either account, what you buy matters more than the label: a contribution left in cash earns little, so confirm it is invested in low-cost diversified funds. If you also have a workplace plan, see increasing your 401(k) contribution or funding a Roth IRA next for how the two compete for the next dollar.
For what each type of account is for, see the retirement account types guide.
Where this comes from
This article is based on the IRS’s page on Roth IRAs, IRS Publication 590-B on distributions (qualified distributions, the five-year rules and early-distribution exceptions), and the IRS’s guidance on exceptions to the early-distribution tax. Contribution limits and deduction rules are left to Publication 590-A, which you should check directly. The arithmetic examples are invented illustrations. Limits, thresholds, tax brackets and rule details change, so check the IRS for current figures, and consider a tax professional for conversions or unusual situations.