The core difference: when you pay taxes

A Roth IRA lets you put in after-tax money now and withdraw it tax-free later. A Traditional IRA lets you deduct contributions from your taxable income now, but you pay income tax on withdrawals later. That one difference — when the tax bill hits — shapes almost everything else about how each account works.

If you expect to be in a lower tax bracket when you retire than you are now, a Traditional IRA often makes more sense. If you expect to be in the same bracket or higher, or if you simply want to lock in your current tax rate and never pay tax on the growth, a Roth usually wins. But the choice also depends on your current income, whether your employer offers a 401(k), and how much you plan to withdraw each year in retirement.

Key Takeaways

  • Roth contributions use after-tax dollars, but may have access to withdrawals in retirement are completely tax-free; Traditional contributions reduce your taxable income now, but withdrawals are taxed as ordinary income.
  • Roth IRAs have no required minimum distributions in your lifetime, so you can leave money untouched to grow; Traditional IRAs require you to start withdrawing at age 73 (as of 2023).
  • Roth IRAs let you withdraw your contributions (not earnings) at any time without penalty; Traditional IRAs charge a 10% early withdrawal penalty before age 59½ on any withdrawal.
  • Income limits restrict who can contribute to a Roth IRA directly; Traditional IRAs have no income limit, but the tax deduction phases out if you have a workplace retirement plan.
  • Roth conversions let you move money from a Traditional IRA to a Roth and pay tax on it now, which can be useful if you expect higher taxes later.

How contributions and tax deductions work

With a Roth IRA, you contribute money you have already paid income tax on. The IRS does not give you a deduction. You put in $7,000 (the 2024 limit for most people), and your taxable income stays the same. The tradeoff is that when you withdraw that $7,000 plus all the growth it earned, you owe zero tax on any of it — as long as you follow the rules.

With a Traditional IRA, you contribute pre-tax money. If you earn $60,000 and put $7,000 into a Traditional IRA, your taxable income drops to $53,000. You pay less income tax that year. But when you withdraw money in retirement, every dollar comes out as ordinary income and gets taxed at your tax rate then. If you withdraw $40,000 in a year, you add $40,000 to your taxable income for that year.

The Traditional deduction phases out if you have access to a workplace retirement plan like a 401(k). If you earn over a certain threshold (the limits vary by year and filing status), you cannot deduct the full $7,000. A Roth has income limits too: if you earn too much, you cannot contribute directly to a Roth at all. For 2024, single filers phase out of Roth contributions between $146,000 and $161,000 in modified adjusted gross income.

Withdrawals and the 10% early penalty

A Roth IRA treats contributions and earnings differently. You can withdraw your contributions anytime, for any reason, with no penalty and no tax. If you put in $50,000 over ten years and it grew to $70,000, you can pull out the $50,000 whenever you want. The $20,000 in earnings stays locked until you are 59½ and have held the account for at least five years. If you withdraw earnings before then, you pay income tax on them plus a 10% penalty.

A Traditional IRA does not distinguish between contributions and earnings. Any withdrawal before age 59½ is treated as a distribution of pre-tax money. You owe income tax on the full amount plus a 10% penalty. There are some exceptions — withdrawals for a first home purchase (up to $10,000 lifetime), medical expenses, or disability — but they are narrow and require documentation.

After age 59½, both accounts let you withdraw without penalty. But a Traditional IRA requires you to start taking withdrawals at age 73 (the age changed under the SECURE 2.0 Act). The IRS calculates a minimum amount based on your age and account balance, and you must withdraw at least that much each year or face a 25% penalty on the shortfall. A Roth IRA has no required minimum distributions during your lifetime, so you can leave the money untouched to keep growing.

Income limits and who can contribute

A Traditional IRA has no income limit on who can contribute. Anyone with earned income can open one and put money in. The catch is the tax deduction. If you have a workplace 401(k) or similar plan, the deduction phases out at higher incomes. For 2024, single filers with a workplace plan phase out between $77,000 and $87,000 in modified adjusted gross income. Married couples filing jointly phase out between $123,000 and $143,000. If you earn above the phase-out range, you can still contribute, but you get no tax deduction.

A Roth IRA has strict income limits on direct contributions. For 2024, single filers phase out between $146,000 and $161,000. Married couples filing jointly phase out between $230,000 and $240,000. If you earn above those limits, you cannot contribute directly to a Roth. However, you can use a backdoor Roth strategy: contribute to a Traditional IRA with no deduction, then convert it to a Roth and pay tax on the conversion. This is legal and common for high earners, but it requires careful record-keeping and has tax implications if you already have other Traditional IRA balances.

Roth conversions and moving money between accounts

You can convert money from a Traditional IRA to a Roth IRA at any time. You pay income tax on the amount you convert in that tax year, but once it is in the Roth, it grows tax-free and you can withdraw it tax-free in retirement. Conversions are useful if you expect tax rates to rise, if you want to reduce required minimum distributions later, or if you want to leave tax-assistance programs to heirs.

A conversion counts as income for that year. If you convert $50,000 from a Traditional IRA to a Roth, you add $50,000 to your taxable income. This can push you into a higher tax bracket or trigger other tax consequences like higher Medicare premiums or reduced deductions. Many people do conversions in years when their income is unusually low — after retirement, between jobs, or in a year with large losses.

You cannot undo a conversion after the tax year ends. Before 2018, you could reverse a conversion if the market dropped. That option is gone now. Plan conversions carefully and consider talking to a tax professional, especially if you have both Traditional and Roth IRAs.

Inherited IRAs and what heirs pay

If you leave a Traditional IRA to a beneficiary, they must withdraw the money and pay income tax on it. The rules depend on who inherits and when you died, but most non-spouse beneficiaries must empty the account within ten years. Each withdrawal is taxed as ordinary income at their tax rate.

If you leave a Roth IRA to a beneficiary, they can withdraw the money tax-free — both your contributions and all the growth. This is one reason Roths are powerful for estate planning. A Roth left to a spouse can be treated as the spouse's own Roth. A Roth left to a non-spouse beneficiary must be withdrawn within ten years, but no income tax is owed on the withdrawals.

Frequently Asked Questions

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

Yes. You can own both accounts simultaneously. However, your total contributions across all IRAs cannot exceed the annual limit — $7,000 for 2024 if you are under 50. If you contribute $4,000 to a Roth, you can only contribute $3,000 to a Traditional IRA that year.

Which one should I choose if I am young and just starting to save?

Most young people benefit from a Roth because they are in a low tax bracket now and will likely be in a higher one later. The money has decades to grow tax-free. If your employer offers a 401(k) match, contribute enough to get the match first, then max out a Roth if you can.

What happens if I withdraw from a Roth before age 59½?

You can withdraw your contributions anytime without penalty. If you withdraw earnings before 59½ and the account has not been open for five years, you pay income tax on the earnings plus a 10% penalty. Contributions are always penalty-free.

Do I have to pay taxes on Roth growth every year?

No. Roth IRAs are not taxed annually. The money grows tax-free inside the account. You only pay tax when you withdraw, and may have access to withdrawals are tax-free. This is different from taxable investment accounts, where you pay tax on dividends and capital gains each year.

Can I convert a Traditional IRA to a Roth if I have already taken money out?

Yes. Conversions are separate from withdrawals. You can withdraw money from a Traditional IRA and separately convert other money in the account to a Roth. The conversion amount is taxable, but the withdrawal is just a withdrawal. Keep records of both transactions for your tax return.